Follow-up comments:
- IRS Topic 425 is correct, but it is way to general.
- What happens in the loss world with pass-through entities is that there is a hierarchy of rules that need to be addressed. In order to be allowed to take losses, one must first look to basis, then at-risk rules and finally if both of those hurdles are cleared, you look to the passive activity rules. In your case here, since you only have $10,000 in capital invested, you don't get past the basis or at-risk component.
- Enter your information in TT just like you would normally. Answer all the questions, including if there was a full disposition and there should also be a question as to whether you are at risk.
- You had a full disposition, but you are not fully at risk. This should ask some additional questions and complete form 6198. This form will be what limits the loss to the $10,000 and will come through as ordinary loss.
- Finally, in a perfect world, you should have only input $10,000 of losses in total previously since that is the extent of your basis. In this case, you would have only had to indicated you had a full disposition and TT would have then taken the full $10,000.
*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.
