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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 493
Experience:  Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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I have started a single-member LLC registered and licensed

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I have started a single-member LLC registered and licensed in Delaware last month. I live in Chicago IL. I work for a large consulting firm making 125K/yr in W2 income. My business venture will buy non-performing whole loan home mortgages (2nd lien notes) for a discount from banks and other financial institutions, and then works with the homeowner to reduce payments, write down principal, and get the loan performing again. I am considering making a $50K investment in my LLC this year and use the total amount to buy non-performing notes this year. If I determine next year, after contacting & trying to work with borrowers that none of those notes are capable of becoming reperforming, resulting in a total loss of capital, can I deduct the $50k loss from my taxable W2 income from my job on this year or next year's taxes? Does this apply equally for my IL state & Federal taxes? If a portion of the $50k investment is financed, does this change anything for tax purposes?

Welcome to Just Answers! Thank you for the opportunity to answer your question! I will do my best to help!

Your LLC is a separate legal entity that is a disregarded entity for tax purposes. This means that you report the income or loss on Schedule C of the Form 1040 when you file your tax return. If you used the $50k to purchase the nonperforming loans, they would be considered your "inventory". If they become non-performing, and worthless, you would be able to write them off in the year that they become worthless. The loss would be an ordinary loss and be deducted on Line 12 of your Form 1040. You do not "offset"or reduce your W-2 earnings by the loss. They are reported on separate lines, but it has the same effect. The loss will reduce your taxable income and your tax liability.

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Looks like a beautiful day in Chicago! I am in Frankfort, not far away. Enjoy the day!

Roger

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