Thread: Lost $50,000 deposit for preconstruction

If this home is for his principal residence, unfortunately, there isn't a loss he can take for "loss on a principal residence."

HOWEVER, if this property was intended to be an investment, then he does have a investment loss. He's going to have some limitations, most likely, on how much he can deduct per year. But, something is better than nothing.

Best way to prove this is to show that he is an investor by showing other investments.

I didn't do any research, so this is off the cuff, and please take it as such - the point I'm grappling with is whether this would qualify as an investment loss (and thus subject to offset of investment income) or a real estate loss (and thus subject to the $25K loss if adjusted gross income is $100K or less). Safest bet is the investment loss route - if he doesn't have investment income (interest, dividends, short-term capital gains), the loss just rolls forward to future years. And he's got some great incentive to go create some investment income! It'll be tax free for awhile to come.

Andviv, what city was this in? I'm just curious. My husband and I had a similar type deal on a couple of spec houses in a new development in S Phoenix area. We only had $15K down on each and were going to close anyway - figuring the market would come up eventually and we didn't want to lose the $30K. We're about to sign and the builder called the title company and delayed the closing. They ended up dropping the price to lower than appraisal without us asking them to. (Boy, lesson learned there - always ask)

The biggest cost, unfortunately, might be to your friend's confidence. That's what I'm worried about. I've seen people lose relatively small amounts of money and then vow to never invest again...and the cost is much, much greater.

Originally Posted by Diane Kennedy

The biggest cost, unfortunately, might be to your friend's confidence. That's what I'm worried about. I've seen people lose relatively small amounts of money and then vow to never invest again...and the cost is much, much greater.

This is such a great Point, Diane!

It is so sad to see people walk away after one loss. They do happen. Mistakes are made. Markets turn sometimes when people don't see it coming. Parterships go bad... and on and on and on.

If only people would see the road to wealth is not a direct incline. Take the mistake and apply the lesson and move on.

I lost $80,000 in borrowed money in the stock market in fall of 2000. But I viewed it as an education and have kept learning and working my system. It looks like this year may finally be the year I use up all of the loss carry forwards and have to start paying taxes on gains again in 2008. Also, my retirement account is about to break even as well.

Thanks for the personal story Kidgas.

One of the huge benefits of a wealth-building community is that we can find role models.

"You lost $20K? So what! Kidgas lost $80K and look at him now."

This happened in Naples, FL.
You are right (mind-reader anyone???) he does not even want to talk about the subject, let alone think about invest in anything else. I will try to touch the subject with him and see what he wants to do. They do make more than 100K (both spouses have high-paying jobs).

Originally Posted by andviv

This happened in Naples, FL.
You are right (mind-reader anyone???) he does not even want to talk about the subject, let alone think about invest in anything else. I will try to touch the subject with him and see what he wants to do. They do make more than 100K (both spouses have high-paying jobs).

You know the funny thing about this? Let's pretend that you're friend's house was completed and he had bought the house the same day that he put down the deposit. Today his house is worth $100,000 less than the day he paid for it, but I will bet you that his mindset would be totally different on investing. In fact, he probably would see that $100k as a paper loss instead of a realized loss.

However, because he has literally lost the $50k deposit and was able to buy another house for $100k cheaper, he feels that he has lost $50k. Instead, he's really up $50k from the day that he put his deposit down.

Much like online poker versus table poker. But yes, he should be ok with his 50k loss instead or it being worse overall. Good posts, y'all! (I am allowed to use Y'all since I live in Texass now).