How do I report a loss of capital investment as a result of a bankruptcy proceeding. The distribution was identified on a 1099 but i need to offset this to account for the business loss

[Carl]

Investment in what? Some type of business maybe? What kind of 1099? 1099-R? 1099-MISC? 1099-DIV? There are 20 types of 1099's. You need to provide more details. As it stands now the information provided leaves way, way to much open for wild speculation.

[Floyd1230]

It is a form 1099-MISC.  I made a $50K business investment in 1 Global Capital but they filed Chapter 11 bankruptcy about 14 months later.  The bankruptcy court authorized a 40% initial recovery of the principal investment from the reconstructed business. The first check was for $20K.  It is uncertain what future checks might be, if any.  The $20K was reported on the 1099-MISC.  I need a way to offset the payment to reflect a capital investment loss of the same amount.  I think the answer is to enter the amount as a loss on line 6 of Schedule C.  If I do this the net gain comes out to be zero, which is the correct answer.

[RobertG]

It would be more accurate to report this under investment income as the sale of an investment.  

It is not self employment income, and your basis is not a self employment expense.  It is a capital gain or loss transaction. The tax effect is the same either way, and the IRS should recognize that you reported the $20,000 on your return.  Just remember that your basis in the investment is also reduced by $20,000.

[delta echo]

I was reviewing this message log because I am facing the same tax dilemma.  My initial investment was for $25,000 and I received a 1099-misc from the bankruptcy proceedings in the amount of $10,000. I agree that this is more of a capital gain/loss transaction, but I can't figure out how to report it using turbotax. The problem I'm having is the $10,000 from the 1099-misc is being reported as "other income" on line 8 of schedule 1. I then use schedule D to report a capital loss of $15,000... it calculates a $3,000 loss for this year with a $12,000 carryover loss. I end up paying taxes on $7,000 of this "other income" that really isn't income to begin with. What am I missing? Is there a way to offset the entire $10,000?

[delta echo]

I was reviewing this message log because I am facing the same tax dilemma.  My initial investment was for $25,000 and I received a 1099-misc from the bankruptcy proceedings in the amount of $10,000. I agree that this is more of a capital gain/loss transaction, but I can't figure out how to report it using turbotax. The problem I'm having is the $10,000 from the 1099-misc is being reported as "other income" on line 8 of schedule 1. I then use schedule D to report a capital loss of $15,000... it calculates a $3,000 loss for this year with a $12,000 carryover loss. I end up paying taxes on $7,000 of this "other income" that really isn't income to begin with. What am I missing? Is there a way to offset the entire $10,000?

[DianeC958]

The best way to report the transaction is as a capital transaction in the Federal Section of TurboTax, Wages & Income, Stocks, Mutual Funds, Bonds, Other. 

When it asks if you received a 1099-B the answer is no and on the page with the options of what type of sale it is, choose Everything Else.

Report the information for the sale and delete the 1099-Misc from so that it is not reporting on Schedule 1 as Other Income.

How to delete a form in TurboTax Online

1. Open or continue your return in TurboTax.
2. In the left menu, select Tax Tools and then Tools.
3. In the pop-up window Tool Center, choose Delete a form.
4. Select Delete next to the form/schedule/worksheet in the list and follow the instructions.