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Level 1

Can you deduct cash investment in an LLC that went out of business? I was an investor not an owner

Invested in a business that was an LLC. I was not a voting member or on a board of trusties.  It went out of business. Can I deduct any of my invested monies?

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Level 11

Can you deduct cash investment in an LLC that went out of business? I was an investor not an owner

If you didn't receive any stock/shares, it would be a non-business bad debt.  Deductible as a short-term capital loss.

If you received stock/shares, then it would be a capital loss, long-term or short-term depending on long you held the shares/stock.

You could have had shares, and not be in a public company.  Privately held stock/shares are sold all the time.

Did you ever receive a Sch K-1 from the LLC?  If so, was it a Sch K-1 from a 1065?   That would indicate it was a partnership interest you held.

If it was a Sch K-1 from an 1120S, that would indicate it was treated as a Sub Chapter S corporation.

In any event, it would appear that it would treated as a capital loss....the question being short-term or long-term?

See this link

https://www.irs.gov/publications/p550/ch04.html#en_US_2016_publink100010713

https://www.irs.gov/taxtopics/tc409.html




6 Replies
Level 11

Can you deduct cash investment in an LLC that went out of business? I was an investor not an owner

What type of investment?   Formal loan?   Informal loan?

You state you invested, but were not an owner, which implies a loan; is that correct?
Level 1

Can you deduct cash investment in an LLC that went out of business? I was an investor not an owner

They called it shares, but was not a public company.
Level 1

Can you deduct cash investment in an LLC that went out of business? I was an investor not an owner

So it was more of a formal loan??
Highlighted
Level 11

Can you deduct cash investment in an LLC that went out of business? I was an investor not an owner

If you didn't receive any stock/shares, it would be a non-business bad debt.  Deductible as a short-term capital loss.

If you received stock/shares, then it would be a capital loss, long-term or short-term depending on long you held the shares/stock.

You could have had shares, and not be in a public company.  Privately held stock/shares are sold all the time.

Did you ever receive a Sch K-1 from the LLC?  If so, was it a Sch K-1 from a 1065?   That would indicate it was a partnership interest you held.

If it was a Sch K-1 from an 1120S, that would indicate it was treated as a Sub Chapter S corporation.

In any event, it would appear that it would treated as a capital loss....the question being short-term or long-term?

See this link

https://www.irs.gov/publications/p550/ch04.html#en_US_2016_publink100010713

https://www.irs.gov/taxtopics/tc409.html




Level 3

Can you deduct cash investment in an LLC that went out of business? I was an investor not an owner

informal 

Level 20

Can you deduct cash investment in an LLC that went out of business? I was an investor not an owner

Before you can take a loss you have to make every effort to collect the debt per the IRS rules AND the debt should have been in writing so in case the IRS was to audit the deduction you have proof of the debt and the ways you tried to collect. 

 

https://www.irs.gov/taxtopics/tc453