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Old 01-30-2009, 01:04 PM
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K-1 losses to personal returns

My mom and I had a business (s-corp) of which we each lent $20,000 to. Unfortunately, the business did not succeed and was dissolved. Last year(2007 TAXES), we both deducted $6667.00 from our personal taxes as a NOL because we were 'told' by a tax 'professional' that we can stretch out our PERSONAL losses over 3 years. The company basically broke even with the exception of our investment/loan.

Ofcourse, we can't take more deductions than our personal income (from our other jobs), but is it possible to write-off the remaining $13,333 each on our 1040 in one year or must it be spread out?


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Old 01-30-2009, 10:37 PM
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The entire loss generated from the S Corporation would be reported on both your Mom's and your K-1's according to the % ownership. Now, I am assuming that you have sufficient basis to claim these losses, I see that you have lent your S corporation $20,000 so I am guessing that you would probably meet the basis test.

If the losses reported on the K-1 are greater than your earned income from your tax return, clearly you will have generated an NOL for that year. The losses generated from the K-1 will first absorb all the taxable income from your Mom's and your personal tax return. The excess will of losses will result in an "NOL carryforward" (through an election) and will help you to offset future taxable for both you and your Mom.

The notion that you can spread the losses over 3 years does not have any relevance here, the tax law is very specific, the NOL can either be carried back or carried forward through an election. If there is no taxable in prior years, it would be prudent to make an election to carryforward the NOL to be used to offset future taxable income.

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