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Old 03-18-2016, 10:36 PM
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Claimable loss from a partnership when the business is closed down

I'm filing taxes for my partnership (LLC managing-member) which closed down in 2015. We ended up with a final balance of $0 in the bank account and no other assets or liabilities.

My 'partner's capital account' from the end of 2014 was $1300 and is 0 at the end of 2015 (I presume). Our business had a net loss for 2015. My share of the loss was about $5000 from the K-1.

Am I allowed to take up to $1300 of that loss on my 1040? Or higher/lower? Thanks for your help.



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Old 03-19-2016, 02:32 AM
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Am I allowed to take up to $1300 of that loss on my 1040? Or higher/lower?======, you can deduct them once thellc which generated them is dissolved. If your K-1 is marked final , then, you can apply the losses to any income; but the proportion of the business loss must be equal to your fair proportion outlined in the LLC?s operating agreement. you must determine each member?s proportion. This proportion is independent of each member?s financial contribution. In other words, the operating agreement may specify that even though Person A invested $1,000k and Person B invested $5k profits and losses are shared by Person A and Person B equally. In the absence of any statement in the operating agreement about how losses will be shared, courts will generally assume that the LLC?s members intended to share losses in the same way that they agreed to share profits.



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Old 03-19-2016, 06:47 PM
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Basis limitations for claiming losses on 1040

Thanks for the reply.
1) The LLC has been dissolved already.
2) The K-1 is marked final (I am filling out the 1065 and K-1 myself)
3) Our operating agreement assigned 38.5% to two of the founding members (my share) and 23% to the third member.

My question was more relating to how much of the K-1 loss I can claim on my 1040 due to basis limitations. Our total business loss was -$4,609 so my 38.5% share means my K-1 loss is -$1,774.

Now, our CPA calculated for the 2014 tax year that my capital account (equivalent to basis?) for 2014 end was $1,300 (down from $6,300 initially). For 2015 end the capital account for all partners is 0, since the business has been dissolved.

So on my 1040 can I take the full $1,774 loss, or only $1,300, or 0? I'm assuming that basis is equivalent to the partner's capital account. Thanks!



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Old 03-19-2016, 06:48 PM
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Thanks for the reply.
1) The LLC has been dissolved already.
2) The K-1 is marked final (I am filling out the 1065 and K-1 myself)
3) Our operating agreement assigned 38.5% to two of the founding members (my share) and 23% to the third member.

My question was more relating to how much of the K-1 loss I can claim on my 1040 due to basis limitations. Our total business loss was -$4,609 so my 38.5% share means my K-1 loss is -$1,774.

Now, our CPA calculated for the 2014 tax year that my capital account (equivalent to basis?) for 2014 end was $1,300 (down from $6,300 initially). For 2015 end the capital account for all partners is 0, since the business has been dissolved.

So on my 1040 can I take the full $1,774 loss, or only $1,300, or 0? I'm assuming that basis is equivalent to the partner's capital account. Thanks!



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Old 03-19-2016, 09:33 PM
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Quote:
Originally Posted by markman99 View Post
Thanks for the reply.
1) The LLC has been dissolved already.
2) The K-1 is marked final (I am filling out the 1065 and K-1 myself)
3) Our operating agreement assigned 38.5% to two of the founding members (my share) and 23% to the third member.

My question was more relating to how much of the K-1 loss I can claim on my 1040 due to basis limitations. Our total business loss was -$4,609 so my 38.5% share means my K-1 loss is -$1,774.

Now, our CPA calculated for the 2014 tax year that my capital account (equivalent to basis?) for 2014 end was $1,300 (down from $6,300 initially). For 2015 end the capital account for all partners is 0, since the business has been dissolved.

So on my 1040 can I take the full $1,774 loss, or only $1,300, or 0? I'm assuming that basis is equivalent to the partner's capital account. Thanks!
My question was more relating to how much of the K-1 loss I can claim on my 1040 due to basis limitations. Our total business loss was -$4,609 so my 38.5% share means my K-1 loss is -$1,774. =========I guess you can deduct $1774 once the entity which generated the loss is dissolved.

Now, our CPA calculated for the 2014 tax year that my capital account (equivalent to basis?) for 2014 end was $1,300 (down from $6,300 initially). For 2015 end the capital account for all partners is 0, since the business has been dissolved.

So on my 1040 can I take the full $1,774 loss, or only $1,300, or 0? I'm assuming that basis is equivalent to the partner's capital account.=========>>> as SAID, If you do the form 1065 correctly, the numbers flow to the K1 appropriately. The K-1 should show each partners EQUAL share of operating loss, expenses, etc, unless you have a LLC agreement based no investment percentage.
Profits and losses pass through to each MEMBer's personal tax return, thus when your LLC dissolves, the memebers record losses according to personal interest percentages in theLLC. You are not allowed to carry over losses into future years when dissolving the partnership.



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Old 03-19-2016, 09:47 PM
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Quote:
Originally Posted by markman99 View Post
Thanks for the reply.
1) The LLC has been dissolved already.
2) The K-1 is marked final (I am filling out the 1065 and K-1 myself)
3) Our operating agreement assigned 38.5% to two of the founding members (my share) and 23% to the third member.

My question was more relating to how much of the K-1 loss I can claim on my 1040 due to basis limitations. Our total business loss was -$4,609 so my 38.5% share means my K-1 loss is -$1,774.

Now, our CPA calculated for the 2014 tax year that my capital account (equivalent to basis?) for 2014 end was $1,300 (down from $6,300 initially). For 2015 end the capital account for all partners is 0, since the business has been dissolved.

So on my 1040 can I take the full $1,774 loss, or only $1,300, or 0? I'm assuming that basis is equivalent to the partner's capital account. Thanks!
Tax laws only allowyou, a member, to recognize a loss at the time the LLC closes if the llc liquidates its assets / distributes only money, receivables and inventory. If the LLC distributes other property when it closes, yu, as a member who receive that property can?t deduct a loss unless you later sell the property at a loss.



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Old 03-19-2016, 11:54 PM
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Negative and positive capital accounts on final K-1

Thanks for the information.

After doing some additional calculations, it looks like we will end up with two of the partners having a negative final capital account and one of the partners having a positive account.

I've been told elsewhere that negative capital accounts are reported on Schedule D as cap gains, is that right? Do you have any information as to where exactly on Sch D such information is to be reported?

Thank you.



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Old 03-20-2016, 02:12 AM
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Quote:
Originally Posted by markman99 View Post
Thanks for the information.

After doing some additional calculations, it looks like we will end up with two of the partners having a negative final capital account and one of the partners having a positive account.

I've been told elsewhere that negative capital accounts are reported on Schedule D as cap gains, is that right? Do you have any information as to where exactly on Sch D such information is to be reported?

Thank you.
As the LLC dissolves, you need to record losses according to your personal interest percentages in the LLC;as said, You are not allowed to carry over losses into future years when dissolving the partnership You need to complete Sch E to record the K-1 information for your personal return. You need to Record the Sch E of 1040 information on line 17 of Form 1040



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Old 03-20-2016, 11:25 AM
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Right I understand the part about recording K-1 information on Sch E.

But what about the negative ending capital account on the K-1? I have read elsewhere that a negative ending capital account is considered as additional income that is reported as a capital gain on Sch D of the 1040.

See here: https://accountants-community.intuit...d-the-k-1-look



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Old 03-20-2016, 02:13 PM
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Quote:
Originally Posted by markman99 View Post
Right I understand the part about recording K-1 information on Sch E.

But what about the negative ending capital account on the K-1? I have read elsewhere that a negative ending capital account is considered as additional income that is reported as a capital gain on Sch D of the 1040.

See here: https://accountants-community.intuit...d-the-k-1-look
I guess it deepdns; basically , LLC can maintain a single LLC capital account for all members, with a supporting schedule that breaks down the capital account for each member. However, it is easier to instead maintain separate capital accounts within the accounting system for each member; Capital accounts are simply tracked in the bookkeeping records of the LLC. Member?s capital account is substantially different from his outside basis in the partnership interest.
in your situation, the INSIDE basis of the LLC is zero as you said while your OUTSIDE basis of the LLC is $1744. It is up to you , a member, with the negative capital account to report the capital gain since it is outside the LLC. A dissolution of the LLC automatically causes the "liquidation" of your LLC assets. Typically, the LLC Agreement in your LLC/ if not, the Operating Agreement in the LLC, discuss the procedure and order of the liqudation, including how to handle a member?s negative account balance. You mayalso treat the situation as a sale of your LLC interest. That would allow the transaction to be reflected on your personal return only, and would not involve the LLC?s returrn. The selling price would be $1744 , your negative account balance.



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