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patmanx
New Member

How do I claim a real estate investment loss in a LLC that is no longer around?

We invested $100k in Howard Big Bear Partners LLC back in 2005.  Have not received a K1(form 1065) since 2006 which showed a loss.  Howard died a few years back and  I can't get a hold of anyone.  It appears that the LLC was dissolved.  How do I claim a loss on the $100k? 

1 Best answer

Accepted Solutions
Rick19744
Level 12

How do I claim a real estate investment loss in a LLC that is no longer around?

Claiming the loss is based on all the facts and circumstances to support the LLC interest is worthless.

This is both an objective and subjective test. 

The regulations state that for a loss under Sec. 165(a) to be allowed "[the] loss must be evidenced by closed and completed transactions, fixed by identifiable events . . ." Regs. Sec. 1.165-1(d) states that the loss is sustained "during the taxable year in which the loss occurs as evidenced by closed and completed transactions and as fixed by identifying events occurring in such taxable year." Therefore, a deduction for worthlessness must be established under these standards. A decline, even if it is severe, in the asset's value does not result in a worthless asset deductible under Sec. 165. Instead, to be worthless, the asset must have no current or future value.

What this means, is that in the year the taxpayer takes the loss on their tax return, it MUST be the year in which the LLC interest becomes worthless.  Taking the loss in the incorrect year will lead to a disallowed deduction. 

Based on your facts, you need to be able to prove that 2016 is the year the LLC interest became worthless.  While your facts are limited, based on these limited facts, I am not sure you would be able to prevail if audited.  Your window to claim this worthless LLC interest may have closed.

For the amount of $$ involved, I highly recommend you consult a tax professional that you can have a one on one discussion with to review all the facts in order to determine the year in which your facts determine when the LLC interest became worthless.

*A reminder that posts in a forum such as this do not constitute tax advice.*

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1 Reply
Rick19744
Level 12

How do I claim a real estate investment loss in a LLC that is no longer around?

Claiming the loss is based on all the facts and circumstances to support the LLC interest is worthless.

This is both an objective and subjective test. 

The regulations state that for a loss under Sec. 165(a) to be allowed "[the] loss must be evidenced by closed and completed transactions, fixed by identifiable events . . ." Regs. Sec. 1.165-1(d) states that the loss is sustained "during the taxable year in which the loss occurs as evidenced by closed and completed transactions and as fixed by identifying events occurring in such taxable year." Therefore, a deduction for worthlessness must be established under these standards. A decline, even if it is severe, in the asset's value does not result in a worthless asset deductible under Sec. 165. Instead, to be worthless, the asset must have no current or future value.

What this means, is that in the year the taxpayer takes the loss on their tax return, it MUST be the year in which the LLC interest becomes worthless.  Taking the loss in the incorrect year will lead to a disallowed deduction. 

Based on your facts, you need to be able to prove that 2016 is the year the LLC interest became worthless.  While your facts are limited, based on these limited facts, I am not sure you would be able to prevail if audited.  Your window to claim this worthless LLC interest may have closed.

For the amount of $$ involved, I highly recommend you consult a tax professional that you can have a one on one discussion with to review all the facts in order to determine the year in which your facts determine when the LLC interest became worthless.

*A reminder that posts in a forum such as this do not constitute tax advice.*
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