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Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1376
Experience:  JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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I have a SMLLC (Florida) that was created in June 0f 09. I

Customer Question

I have a SMLLC (Florida) that was created in June 0f 09. I as sole member/manager personally loaned (At different intervals)
the LLC over $1MM towards a real estate development project , and have been very active in the business. The LLC files as a sub-S on an 1120-S. The LLC & its property is being auctioned and I anticipate a $900K loss. There is no income to offset the loss. My question is how, when & where can I take this loss on my personal return....carry back, forward etc!!!!
Submitted: 2 years ago.
Category: Tax
Expert:  Jax Tax replied 2 years ago.

Jax Tax : Welcome to JA.
Jax Tax : First and foremost you need to get with your bookkeeper. You need to convert all loans you gave the business to capital contributions. You really should not be loaning money to an LLC that you own 100% of. There are many reasons. Some legal some financial. Just convert them.
Jax Tax : Upon conversion, the capital contributions will be included in your outside basis which is important.
Jax Tax : You can only take losses up to your outside basis. Once reduce to zero losses cannot be utilized.
Jax Tax : Then, the LLC files form 1120s where losses are reported to you on form k1. The losses listed are then included on your personal return 1040. Mostly on schedule E.
Jax Tax : Losses in excess of basis cannot be used.
Jax Tax : If losses exceed other income for that year, you can carry them back 3 years and forward 20 or elect only to carry them forward.
Jax Tax : Carryback goes to hear three first then forward using form 1040x, 1045, or 843. Personally, I use 1040x.
Jax Tax : If the business closes and you still have unused basis, it becomes a sch D capital loss. This can be used at $3000 per year against other income and is only carried.forward. If you do not covert the loans, the unpaid loans all become capital loss limited to $3000 loss a year and only carry forward.
Jax Tax : That is the financial reason and should be enough to do it.
Jax Tax : Your basis is all money contributed, loans converted, profit previously reported on form k1, plus your share of any LLC liabilities reduced by distributions to you, reductions in LLC liabilities, and losses reported on form k1.
Customer : Just reviewed my 09 & 10 1120-S. They both show my contributions as shareholder loans line 19. Obviously we need to change this classifaction.
Jax Tax : You can report the change in 2011 unless you have not filed the 1120s and the k1 shows a loss. Are the 1040s done?
Customer : What is the best way to do this. I'm in Fl my accountant is in Georgia...I had no clue. This should have been Capital....
Jax Tax : On 2011 the balance sheet would just move loans to capital account.
Customer : What line is that on the 1120-S
Jax Tax : For the future, I would avoid making loans to your own company. Other than tax reasons, it can turn out bad.
Customer : Again, what specfic line on pge4 balance sheet does this go on ????,,
Customer : If this loss is realized in 2011 and we file a 1040X? Do we go back to 08, 09 etc until it's used up. Is this the order?
Customer :

Hello,,,,,

Jax Tax : Yes, 08 09 10 then 12 forward. It goes under owner capital.
Customer :

I don't see a line for owner capital...... do you know the line#

Jax Tax : Schedule L line 25.
Jax Tax : Sorry for that.
Jax Tax : Your accountant will know where to put it. One adjustment in his software and print.
Jax Tax : Simple.
Customer :

Says attach statements, how do we word this statement.

Customer :

In other words...whats the buzz-word for this. If it isn't a loan, maybe capital contrubition???

Jax Tax : It is capital contributions. Sch L is not filled in or line 25 says see attachment?
Customer :

The $$$$ were reported on the 09/10 returns as loans is there a best way to correct these two returns or do we let it slide and just make the capital (line 25) adjustment on the 11 return? Thanks, XXXXX XXXXX Happy New Year...

Customer :

How do I print this session out.....by going to my questions page??? Etc

Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1376
Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
Jax Tax and 4 other Tax Specialists are ready to help you
Expert:  Jax Tax replied 2 years ago.
Sorry for the delay. It appears there was some technical problems.Yes, just move it on the balance sheet. Yes, go to account. Copy and paste to word and print.

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