Have a Tax Question? Ask a Tax Expert
Yes, sorry, as the property was depreciated, and the members enjoyed that tax benefit (loss, or reduction in profit) there will be re-capture of that upon liquidation
The gain received from the sale of depreciable capital property that must be reported as income. Depreciation recapture is assessed when the tax basis of an asset exceeds the sale price. The difference between these figures is thus "recaptured" by being reported as income. Depreciation recapture is reported on Form 4797.
The money received from rent was only enough to cover the bank payments and the members never received any.
Yes, but when the 1065 was done, (and K-1s distributed) the depreciation caused there to be less taxable income (or more loss as the case may be) That tax benefit is what's being recaptured --- had depreciation not been taken, there would have been highr taxable income in those years (or, again, less less, depending on the situation)
sorry MORE loss
Here's an excellent article, with examples: http://www.biggerpockets.com/forums/104/topics/25595-how-depreciation-is-recaptured
and here's the IRS guidance: http://www.irs.gov/publications/p544/ch03.html
one more time ... had depreciation NOT been taken in those years, there would have been higher taxable income or less loss than if there had not been depreciation written off
Now, if there were accumulated passive losses that were not able to be taken - because the taxpayer had no passive income - (this will be specific to each taxpayer) if this qualifies as a qualifying disposition, then those losses can now be taken
Relative to that, see this: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Passive-Activity-Loss-ATG---Chapter-5,-Dispositions
Publication Date - December, 2004
NOTE: This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date.
Table of Contents / Exhibit 5.1Tax Code, Regulations and Official Guidance Search
Chapter 5, Dispositions
In A Nutshell
Passive losses are generally deductible only to the extent of passive income. However, current and suspended losses are fully deductible if there is a “qualifying disposition.” Under IRC § 469(g), a “qualifying disposition” requires three criteria:
This is from the IRS guidance I linked for you, above
I still don't see you coming back itnto the chat ... sometimes if I move us to the "Question & Answer" mode that helps
Thank you for the answer, because I am personally signed on the companies debt, I will probably be forced into personal bankruptcy and have no money to pay the tax, I wonder if the taxman could get his before the bank so that I wouldn't have the taxman on my back for the rest of my life. I will be unemployed and 63 years old.
I'm so sorry - DO you know off the top of your head whether there may have been previous losses that could not be taken?
I will certainly say this - Bankruptcy is there for a reason.Further, if you go that route be sure that all of you previous tax es have been paid, and paid on time, and you may be able to include some of that in the bankruptcy as well.
You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of the following conditions are true:
The business is actually consisting of 3 c corporations and LLC. The c corporations are the renters of the property held by the llc, we are looked at as a family of companies and file a, one of those corporations will have a substantial loss, all the companies will be liquidated to pay debt.
With regards XXXXX XXXXX 240 day rule, if I go bankrupt soon after the sale of the businesses would that mean the depreciation recovery and other taxes associated with the sell would be dischargeable?
It all depends on the date of the return ... and that return will cover tax year the sale occurred
I sell the property now, I go bankrupt next month and I file the tax return next april ?
SO, in your case, it could be that the "or must not have been assesed yet" part of the rule applies
Sorry, look a the debt is at least three years old rule
It sounds like I am just hosed for the rest of my life. Thank you for your excellent help.