Abandoned Investment

[milloo]

I invested $100,000. in a start-up LLC in Jan 2007. I was presented certificate for 1000 class A shares representing 0.2% ownership in LLC.  I have never received any income of any kind since initial investment.  I have received yearly K-1 documenting passive losses from 2007 to 20018.  Passive losses have been carried over year after year since I have never had passive income and now total over $100.000 in unrealized passive losses.  We did not receive K-1 for 20019 or 2020 and research indicates company no longer exists.  We returned our shares to original issuer and declared our intent to completely abandoned the investment.  I have been informed I can take this loss against ordinary income but unable to figure out how to do this on Turbo tax.  Possibly form 4797.  Do the previous unrealized passive losses just go away?  Thanks for any suggestions.

[Mike9241 · Accepted solution]

1 issue. if you only invested $100,000 that's the limit of the passive losses carryover you can deduct.  you'll need to adjust the passive loss carryover since your at-risk amount (the amount you can deduct) is limited to your initial investment less any losses deducted + any income reported less any distributions received. 

on the k-1 check the box for final k-1 and partnership discontinued in 2020. use the Quickzoom link to enter disposition information, in part II of the disposition section check 1a and 1a (2). enter the dates on lines 2 and 3.

answer question 4. on lines 5, 7 and 9 enter zero

what likely happened is that in addition to what the partners put in there was debt that could be used as part of tax basis allowing losses to exceed the actual investment. however. each year basis needed to be adjusted for the partnership losses and changes in the debt.  if it went up your basis went up. if it went down (if would have dropped to $0 if the partnership ceased operations) your basis goes down resulting in the recapture of  excess losses (losses in excess of your adjusted basis). Turbotax does not track basis/at-risk. 

here's a link to a worksheet that can be used to calculate basis