Credit for losses from business with a bankrupt company

[munk]

We have a contract with a company for which they would buy money-producing websites and built an additional one, and then mange them to keep them producing.  We would own the sites.  The contract was for 200,000.  They did not buy the websites they were to buy based on our contract but they did built one.  We suspect the company filed or is about to file bankruptcy, but we are still trying to recover the initial investment.  If the bankruptcy happens, can we deduct this huge loss?  How much of this loss can be deducted?  Over how long?

[Vanessa A]

Did you actually give them the $200,000?

[munk]

yes

[Anonymous]

you'll need advice from a tax professional that can review the contract and the entire situation.

there are several possibilities 

you were scammed 

                if so, this loss may not be deductible at all 

it was a legitimate business that failed

                until it actually goes bankrupt, you are probably not entitled to any sort of deduction

                if and when it does this would be an investment loss (capital loss) reported on form 8949 with a net                     capital loss you can only deduct $3,000 per year

it could be a business loss deductible as an ordinary loss but again not until it goes out of business

since you are still trying to recover, nothing would be currently deductible since the amount of your loss can't be determined. what the IRS would say is your loss id a contingency 

again this is something that needs the opinion of a pro - possibly even a tax lawyer.    this is a public forum and what i have stated is an opinion which would be worthless if the IRS contests what you do.