Tax question re: earnest money/real estate

[AlexTina]

I have been searching all day and can not find an answer to my question or even a similar situation. So I thought maybe by chance someone here might know the answer or possibly have gone through a similar situation.

My husband and I were going to buy a new home back in 2007 we put down $5000 in earnest money and proceeded to try and sell our current home (the home was under construction). Unfortunately we weren't able to sell our home and the builder had another buyer so rather than be stuck with 2 mortgages we opted out of our contract with the understanding that since they would not be loosing anything we would get our earnest money back. A couple of months passed and we never received our money, I contacted the builder and they informed me that they would not be returning the money, so I got myself a real estate attorney and wound up getting the majority of the money back in 2008. I thought all was said and done but today I received a 1099-misc from the builder showing the amount of the earnest money refunded as income. I cannot find any information on the anywhere. My question is how is my money which I already paid taxes on taxable income? I didn't even receive the whole deposit back so if anything I would think it would be a loss although, I know that I cannot claim the difference as a loss unless it is an investment property. So anyone? How can my own money being refunded to me be taxable income? TIA

Tina

 

[Rafiki Rafiki Rafiki]

I'm no tax attorney, but it would seem that there was no reason for the company to send you a 1099 for that money. I would contact the RE attorney who handled the transaction and see if he has an opinion on the subject. I should think that he would make a call on your behalf to the builder and have that corrected.

I think the biggest thing is that you need to deal with the errant 1099 rather than ignoring it!

 

[DisneyMomOK]

I have been searching all day and can not find an answer to my question or even a similar situation. So I thought maybe by chance someone here might know the answer or possibly have gone through a similar situation.

My husband and I were going to buy a new home back in 2007 we put down $5000 in earnest money and proceeded to try and sell our current home (the home was under construction). Unfortunately we weren't able to sell our home and the builder had another buyer so rather than be stuck with 2 mortgages we opted out of our contract with the understanding that since they would not be loosing anything we would get our earnest money back. A couple of months passed and we never received our money, I contacted the builder and they informed me that they would not be returning the money, so I got myself a real estate attorney and wound up getting the majority of the money back in 2008. I thought all was said and done but today I received a 1099-misc from the builder showing the amount of the earnest money refunded as income. I cannot find any information on the anywhere. My question is how is my money which I already paid taxes on taxable income? I didn't even receive the whole deposit back so if anything I would think it would be a loss although, I know that I cannot claim the difference as a loss unless it is an investment property. So anyone? How can my own money being refunded to me be taxable income? TIA

Tina

I think you are lucky you did not buy a house from this guy; he really sounds like he lacks in the scruples department. IMO, it seems he wanted to claim your reimbursement as an expense to lessen his own tax burden.

 

[AlexTina]

Thank you both I just wanted to verify that what I was thinking was likely accurate. I will contact the RE first thing Monday morning.

Tina

 

[Cheshire Figment]

What box # was the money in? It can make a difference.

 

[Pin Wizard]

Wow! I'm surprised they would agree to give you any part of that $5,000 back. You broke the contract, they should keep the "earnest money."

 

[golfgal]

Wow! I'm surprised they would agree to give you any part of that $5,000 back. You broke the contract, they should keep the "earnest money."

Most real estate purchase agreements, at least around here, have exclusions for financing. If they couldn't get financing because of the previous home, it would not have been breaking the contract.

 

[marydmjj]

Usually builders/new construction deals have a separate addendum stating that the earnest money is non-refundable. Most good and ethical builders will agree to refund the money in full, even though they don't have to, if they have sold the house to another buyer.

That being said, the money you got back is a REFUND of money you paid to the builder, not income.

 

[marydmjj]

Most real estate purchase agreements, at least around here, have exclusions for financing. If they couldn't get financing because of the previous home, it would not have been breaking the contract.

The financing addendum is part of the contract in every state, I believe. The difference is that the builders addendum supercedes the financing addendum and purchase and sale agreement as far as the earnest money is concerned.

 

[AlexTina]

Wow! I'm surprised they would agree to give you any part of that $5,000 back. You broke the contract, they should keep the "earnest money."

Well thanks for your opinion that's very helpful in answering my question. Actually we didn't break the contract the builder stated that they had another buyer all ready lined up so if we choose to we could cancel the contract and therefore not wind up being stuck with 2 mortgages. We also had a buyer for our home and when they were unable to sell there's we refunded their earnest money as well. I guess leagally we could be greedy and keep the money but that just seems really, well just not very cool .

Usually builders/new construction deals have a separate addendum stating that the earnest money is non-refundable. Most good and ethical builders will agree to refund the money in full, even though they don't have to, if they have sold the house to another buyer.

That being said, the money you got back is a REFUND of money you paid to the builder, not income.

Thank you that's what I figured, I just can't seem to wrap my brain around how money that we've already been taxed on and simply used it to pay for something then received a refund could possibly be income.

Tina