How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Lane Your Own Question

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4003
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
1929974
Type Your Tax Question Here...
Lane is online now
A new question is answered every 9 seconds

An llc has a mortgage on a commercial property, each member

Resolved Question:

An llc has a mortgage on a commercial property, each member is also personally guaranteeing the loan. If the mortgage goes into default and the bank forces sell of the property and if the property sells for just enough to cover the the loan amount and the building has been depreciated over the last 12 years, would there be a tax liability passed on to the members even though there was no cash distribution to the members after resolving the debt and cost of sell?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

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

NPVAdvisor :

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.

Customer:

The money received from rent was only enough to cover the bank payments and the members never received any.

NPVAdvisor :

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)

NPVAdvisor :

sorry MORE loss

NPVAdvisor :

Here's an excellent article, with examples: http://www.biggerpockets.com/forums/104/topics/25595-how-depreciation-is-recaptured

NPVAdvisor :

and here's the IRS guidance: http://www.irs.gov/publications/p544/ch03.html

NPVAdvisor :

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

NPVAdvisor :

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

NPVAdvisor :
Like Print

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 5.1
Tax 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:



  1. Disposition of an entire interest (or substantially all[1])

  2. In a fully taxable event (where all gain/loss is realized and recognized).

  3. To an unrelated party.

NPVAdvisor :

This is from the IRS guidance I linked for you, above

NPVAdvisor :

I still don't see you coming back itnto the chat ... sometimes if I move us to the "Question & Answer" mode that helps

Customer:

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.

NPVAdvisor :

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?

NPVAdvisor :

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.

NPVAdvisor :

See this:


When You Can Discharge a Tax Debt


You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of the following conditions are true:



  • The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.

  • You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, bankruptcy can't help.

  • The debt is at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy.

  • You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.

  • You pass the "240-day rule." The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. (This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.)

Customer:

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.

Customer:

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?

Customer:

consolidated return

NPVAdvisor :

It all depends on the date of the return ... and that return will cover tax year the sale occurred

Customer:

I sell the property now, I go bankrupt next month and I file the tax return next april ?

NPVAdvisor :

SO, in your case, it could be that the "or must not have been assesed yet" part of the rule applies

NPVAdvisor :

Sorry, look a the debt is at least three years old rule

Customer:

It sounds like I am just hosed for the rest of my life. Thank you for your excellent help.

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4003
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 8 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.


Thanks for the rating Dave.

Just take it one step at a time.

I've seen much worse.

Let me know if I can help further,

Lane

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.