<p>Sorry if this has come up many times before. Son accepted admission at a college, but later got off the waitlist at his #1 choice, where he will be going in the fall. A friend suggested that the forfeited deposit should be tax deductible, since no goods or services were provided. Is this correct? Should I write to the first school and ask for a letter acknowledging our gift? Thanks for any pointers.</p>
<p>Your friend is dead wrong; your lost deposit was not a “gift.” Your son sent the money in for the sole purpose of securing a spot in the freshman class. The fact that he later changed his mind and backed out of the deal does not make it tax deductible. </p>
<p>It’s just like losing your earnest money when you back out of a contract to buy a house. The other party gets to keep the deposit/earnest money to help compensate for any damages it suffers due to your breach of contract. The school now has to find another student to fill that seat left vacant by your son.</p>
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Wasn’t the holding of the spot a ‘service’? It’s the whole point of the deposit.</p>
<p>LOL, it would be interesting to see if the college would acknowledge or be willing to pretend to treat a forfeited deposit as a “gift” and put in writing that your forfeited desposit was a gift. It might be considered a charitable contribution if you can get something in writing as an potential audit backup but if I were a college I’d probably laugh at your request.</p>
<p>A deduction is one that is allowed by the Internal Revenue Code. Generally you can take deductions for business expenses and only certain investment expenses if you itemize.</p>
<p>College payments/deposits are considered personal expense akin to home ownership,buying clothes etc. Accordingly, the forfeited deposit is NOT deductible and neither is the yearly tuition payment.</p>
<p>Interestings, had you hired your child to work in your business or rental property, you could have deducted the wages. He could have u sed those deducted wages to pay his own tuition,which is getting the equivalent of a deduction for the tuition. However,now it is a bit late for this.</p>
<p>tulipdad…I agree with the others. You DID get something for the deposit and it was not a “gift” to the college. What you received was holding a spot in the class. You have chosen not to use that spot NOW but you got the spot held for your son during the period of time you needed it held and it was not given to someone else during that time. You knew it was nonrefundable at the time. I’m afraid you are tiptoeing through the tulips to see it otherwise.</p>
<p>On Taxguy I like the way you think!</p>
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<p>However, child would have had to pay taxes on said wages.</p>
<p>There is no free lunch.</p>
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No. It wasn’t a “gift” it was money you paid for services (holding your spot). Your just out the money. </p>
<p>If you ask them to classify it as a gift then you’re asking them to break the law and thus I don’t think such a request would be looked upon favorably. </p>
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Not really. You’re simply transferring the tax liability to your child so in the end there’s really no net savings.</p>
<p>What about treating it as a casualty loss ?</p>
<p>Perhaps the child is in a lower income bracket than the parent-employer.</p>
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No. There was no “casualty.” They made the voluntary decision to not attend and knew you were going to lose the deposit if they did that.</p>
<p>If you put a deposit down on something under contract (in this case a college place) and then break the contract (in this case by not attending and paying the tuition) then you’re just out the money plain and simple. It’s not a tax writeoff.</p>
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Perhaps… but if you’re paying the child anything substantial (above and beyond what you could just give them as a tax free gift or transfer) then you start getting into other expenses too. Remember that some tax gets charged to both the employee and the employer.</p>
<p>Also, if you’re giving your child a “job” that’s not really a job for a tax dodge then your committing fraud. I’ve seen people do it and they’ll get screwed if they ever get audited… having family on your payroll is always something that comes under the microscope in part just for this reason.</p>
<p>Since a deposit is typically made on the payment of tuition, could the forfeited “tuition” deposit be paid with 529 funds and as a result yield some tax benefits?</p>
<p>^^^I don’t know all of the fine print with 529’s but that might work seeing as it is an ‘educational related expense.’</p>
<p>Section 529 monies used for education isn’t taxable. If it isn’t taxable, you will get no deduction. Again, the answer is no deduction. Move on.</p>
<p>Taxguy, I’m not sure if you got what I meant. </p>
<p>Let’s say you put this tuition deposit down, drawing on a 529 that you had set up years back and had to forfeit it (illness, family crisis, or whatnot). You still enjoyed the tax benefit of using the 529 for that money over the years, no? Or would you be required to replace that money if you in fact did not (or could not) attend the classes paid for with the money from the account?</p>
<p>And thinking again outside of the box, if it is indeed a tuition payment (non-refundable), could you apply that payment towards the Lifetime Learning or the Hope deduction? Or once again, because of the withdrawal would that not count?</p>
<p>But it’s not a tuition payment. It’s a deposit. You aren’t paying for credits and working toward a degree, you’re not a full time (or even half time) student. The school will not issue a 1098T stating the qualified tuition that money went towards. It is a non refundable deposit and nothing more.</p>
<p>3bm is right. However, even if you can say it was for qualified tuition, you are not subject to any tax on the use for tuition. You contributions are after tax contributions as tuition would be. In short: You get no deduction.</p>
<p>The only way you might be able to claim a deduction as a casualty loss is if the money was stolen from you, which would be very farfetched. In addition,personal casualty losses have a $100 floor,which this doesn’t exceed anyway.</p>
<p>$100 floor plus 10% of AGI. It would have to be one heck of a deposit.</p>