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Loss on Business Loan

thetaxdoctor1
Level 3

A client loaned 21,500 to a person who setup a bar with it and the bar ended up closing and he was never paid back. He got a letter from the partener saying that the loss on the loan is acknowledged.

How is this entered in ProSeries? It would be considered a passive loss if the client was not involved in the business and just lent money to open it.

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11 Comments 11
Just-Lisa-Now-
Level 15
Level 15

Are they going to take this person to court to recoup their money?


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
thetaxdoctor1
Level 3

No, we are taking it is a loss on their tax return. I am able to take the whole loss and put it on a 4797 for him for now but I wanted to check if there were other alternatives

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sjrcpa
Level 15

Is your client in the business of making loans?

Assuming no, a nonbusiness bad debt is a short term capital loss.


Ex-AllStar
thetaxdoctor1
Level 3

no and I saw the nonbusiness bad loan part in proseries, but if we insert it in that section, he only gets a 3k capital loss, it is limited. Would the rest carry forward?

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thetaxdoctor1
Level 3

the loan was made in 2018 and i have a letter from the business partner indicating it won't be paid off and I can take the loss now. The letter is date Dec 2022

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BobKamman
Level 15

First sentence, he's a lender.  Second sentence, he's a partner.  Was there a written agreement setting forth the exact relationship?  And by the way, how are they related?  Sounds like a brother-in-law deal to me.   

sjrcpa
Level 15

I missed the partner part.


Ex-AllStar
thetaxdoctor1
Level 3

My taxpayer lended the money to his business partner to open a bar

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BobKamman
Level 15

As I was saying, was there a written agreement?

sjrcpa
Level 15

What does "his business partner" mean?

If nonbusiness bad debt is the correct answer, then yes the unused loss carried forward.


Ex-AllStar
qbteachmt
Level 15

"My taxpayer lended the money to his business partner to open a bar"

It's either:

My taxpayer lent money to his partnership, and the intent was to open and operate a bar. Now the partnership can't pay him back. In this example, he is part of the partnership (on the paperwork legally, and got a K-1 from the partnership's operations each year).

Or,

My taxpayer lent money to a person, and that person no longer has the ability to pay it back. In this example, he is only a lender and is not also a partner in the legal entity that owns/operates the bar.

You keep stating it incorrectly. Find out which way it is, in reality.

And it matters if any of this was paid previously or was no payment ever made?

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