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Business & farm
A number of things to address:
- Hopefully you have maintained your tax basis in this investment. You will need this in order to determine your overall gain or loss.
- Your tax basis should have been adjusted regardless of whether any losses were suspended.
- While you may have been promised the 8% return, you cannot write off a loss for something that you never picked up in income. So nothing available here; no economic loss.
- The tax code allows for a worthless investment deduction, however, in order to do so the taxpayer must be able to support that the investment is in fact worthless and the deduction must be taken in the appropriate tax year. This is a facts and circumstances test.
- No K-1 for 2019 and possibly none for 2020 is a factor in your favor.
- You also need to look at what assets the partnership has remaining. What are the odds that you as a limited partner will receive any. Certainly having the partnership in bankruptcy is in your favor, but once again, is there any chance you will receive anything down the road; this doesn't mean in 2020, but in fact any chance in 2021 or 2022 when everything is finalized in bankruptcy court.
- If you determine you can support a worthless investment deduction in 2020, then you will have the following to account for in your 2020 tax return:
- Determine your overall gain or loss. This is essentially the remaining tax basis that you have since you will be taking the position that you will not be receiving any liquidating distributions. Based on the length of time you held the partnership interest, this will be a capital loss assuming that you in fact have tax basis remaining.
- Since this will be deemed a disposition, you will also be able to take any suspended losses that have accumulated.
- The key here is knowing your tax basis (or being able to compute it if you have all prior K-1's) and based on your particular facts believe 2020 is in fact the year your investment became worthless.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
Also keep in mind the date of replies, as tax law changes.
‎April 6, 2021
4:56 PM