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Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience:  I deal with all levels of tax planning and controversy - from the ordinary to the complex.
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Sale of home as collateral for Bank Loan - Tax Deductable

Customer Question

I had to sell my home to pay off a SBA Business Loan in which I personally secured the loan with my home.

I was an officer of the corporation and filed Bankruptcy (Personal and Business) after trying to to turn business around with personal funds. After filing bankruptcy I sold my home and $110K of the homes equity was used to pay off the SBA Bank business loan. Since this payment came from my personal property after I filed bankruptcy is it tax deductable for that year?

I filed Bankruptcy in Nov 2003, and was discharged Jan. 2004. Sold home in March 2004.

I live in California and both corporation and personal property were in CA.

I would like this Answer this evening if possible. I'll pay $5.00 for your time if answered after later than 8:00AM PDT 4/15/05... I'll pay $20 if answered before then... Thank you.
Submitted: 11 years ago.
Category: Tax
Expert:  Jon Andrews replied 11 years ago.

It will not be "deductible" in and of itself, but it should give you additional basis in the stock which would then allow you a deduction for "worthless stock" or "non-business bad debt". 


If it was an S corp, it will give you the potential for an ordinary loss. If it was a C corp, you will either have a capital loss or a Section 1244 loss, depending on the circumstances.


It is possible that you could structure the transaction to be a "business bad debt". That is unlikely because that normally requires you to advance money to the corporation in order to "secure" your employment. Since this was done subsequent to the closing of the business, it would be difficult to assert that you were securing employment with the corporation.


If you can make the transaction fit within the Section 1244 parameters, you will get ordinary loss treatment which is much more favorable than capital loss treatment.


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Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience: I deal with all levels of tax planning and controversy - from the ordinary to the complex.
Jon Andrews and other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Jon Andrews's Post: Jon,

Thank you for the reply. It was a C corporation and I have filed an extension and after reading more on the 1244 "ordinary loss treatment" I believe I should fall under this section.

I paid the full amount of $20 I offered because there was no way to only pay the $5.00 I stated in my question and I appreciated your response... Best regards...
Customer

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