I invested in LLC that built homes for sale. Bank foreclosed on property. I lost 100% Is this tax deductable?
I was approached by a friend in 2005 who was building / selling luxury real estate in Colorado. He had been doing this for several years, and needed investors to fund several new homes for sale. I, along with about 10 other investors gave him money. We put our money into a pot, structured as an LLC.
Basically, when the housing market tanked, he couldn’t sell the house. Ultimately, the property was foreclosed upon and 10 of the 11 investors were out 100% of their principal. 1 investor, the first principal, was able to pull out his initial investment.
My question is this – since this was an investment property, am I able to write this principal off for tax purposes? I assume I am (by assume I mean hope) but I haven’t been able to find a definite answer on the IRS website.
Would be greatful for any answers or ideas on where to look for answers.
Wow. I’ve got some great responses – thanks all. I just wanted to clarify one earlier question.
I was an investor in the LLC, not a partner. The way the contract was structured was that I, and others, loaned the LLC money and we were supposed to see a fixed return on investment. In my case 20%. I however, got no return, and no principal back. So, in essence, lost 100% of the investment.
No Tag
I am no tax adviser but I think that you can write off any type of capital loss including gambling losses so I would assume that these losses would also apply.
Yes on your Schedule D you will put the date you invested and the amount one the basis and for sale price you will put 0 and the date when your investment went under. if you invested in it for over a year, then you will put it in the long term capital gains and loss. look for this information on the capital gains and loss.
This is bad debt.
Non-business bad debt is reported as short term capital loss on schedule D (Form 1040). The debt must be genuine for you to deduct a loss. A debt is genuine if it arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable sum of money For each bad debt you must attach a statement. Read page 105 of IRS publication 17.
Read http://taxipay.blogspot.com/2008/04/list-of-articles.html
Were you an investor or a partner? Saying that you put your money in a “pot” structured as an LLC indicates a partnership. You would need your accountant to prepare a K1 for each of the partners.
Regarding the LLC: You need to check and see how it was created. Chances are good that it was set up as a partnership. If that is the case then the LLC will have to do a partnership return which will give you, and all the other investors, a K-1 for your personal return. This will probably be a final partnership return so you can also claim the loss on a Schedule D showing a loss as a termination from a partnership. The date you invested will be the acquire date, the date it became worthless will be the sold date, the amount you invested, minus any return of capital you have received will be the basis and the sales price will be zero.
Hope this helps!
Virginia Cunning, Enrolled Agent, Master Tax Advisor
H & R Block
This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more.