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emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3179
Experience:  IRS licensed Enrolled Agent and tax instructor
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Client was gifted a small % in LLC so he receives a K-1 that

Customer Question

Client was gifted a small % in LLC so he receives a K-1 that shows a loss. He has not invested any money into the complany so the question has two parts:
1. can he take the loss?
2. if he can't take the loss do we still need to include the K-1 with the return?
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.

Hi. My name is ***** ***** I will be happy to help you.

Yes, he can take the losses. Receiving percentage of LLC is treated the same as receiving any other property.

Let just say that instead of receiving % of LLC, he would received a stock that the original owner bought for $100 per share and it had FMV of $80 on the day he received it. He sold it for $8 per share. Can he claim the loss? Yes, he can. His basis will be the basis of the original owner.

You can apply the same logic to the gifted % of LLC. The original owner's basis became your client's basis. If the original owner basis were 20K on the day he gifted the LLC to you client, your client's basis (or investment) is 20K.

And no, you do not need to attach K1 to his return unless requested by IRS later. But you may need to attach it to his state return. Check your state instructions.

Expert:  emc011075 replied 1 year ago.

I see you read my respond. Do you have any questions? Is there anything else I can help you with today?

Customer: replied 1 year ago.
thank you.
Expert:  emc011075 replied 1 year ago.

You're welcome.

And if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. You find the rating bar on the top of the page – 5 stars. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.