USA LLC loss deduction

[fireman]

Hello, we started an LLC for a Real Estate investment business. We never actually went into business, but began with a Real Estate Purchase and Sale agreement for a parcel. We went through a feasibility period, spending $18k. Upon closing day, the Seller no-showed. The Agreement defaulted. We lost that money. We are now dissolving the LLC. After completing the 1065 and K-!, can we each deduct our share of the losses on our individual returns for 2014?

Thanks.

 

[ColinCPA]

This depends. Are you in the business of buying and selling real estate? If you are, there is a justification for this as a business bad debt which could be applied as a loss against other ordinary income.

I gather this is likely not the case, and as such, this is really a nonbusiness capital loss transaction. You could report the capital loss on Schedule D, with zero proceeds and a basis of $18,000 (or your portion paid if your partner is not your wife). This loss could be applied against other capital gain income or else carried forward and deductible up to $3,000 per year against your ordinary income.