Seller retaining contract deposit as damages due to defaulting buyer - Is it taxable?

I don't think they are taxable, but please ask your attorney or CPA.

dog face: you have to stop this.

this is a tough one. Almost all contracts say the deposit is forfeit as "liquidated damages". Compensation for damages is not usuall ytaxble, but her's what is:

1. Interest on any award.
2. Compensation for lost wages or lost profits in most cases.
3. Punitive damages. See Punitive damages, later.
4. Amounts received in settlement of pension rights (if you did not contribute to the plan).
5. Damages for:
1. Patent or copyright infringement,
2. Breach of contract, or
3. Interference with business operations.
6. Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.

Notice the "breach of Contract". So are they damages because they are called "Liquidated Damages" in the contract, or is it compensation for Breach of Contract? My guess would be the first, ESPECIALLY if you re-sold the place for less money. But I don't know the actual answer, just pontificating.

Not only is it fully taxable, it is taxed as ordinary income as no sale took place.

Does anyone know if it is tax deductible as an investment loss would be for the person forfeiting the deposit