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Sold my business 2 years ago. LLC. New owner defaulted and…

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Sold my business 2...

Sold my business 2 years ago. LLC. New owner defaulted and we had to personally guarantee lease. Had to pay landlord $30k to clear that. Which form do I use to report with this years taxes.

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How to report personal guarantee

Submitted: 4 months ago.Category: Tax
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Answered in 23 minutes by:
12/23/2017
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 4 months ago
PDtax
PDtax, Certified Public Accountant (CPA)
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Customer reply replied 4 months ago
We sold our business in 2015. Still had time left on lease which the LLC and us personally guarenteed. Closed the LLC (husband and wife) and filed final 1065 in 2016 for 2015. All was fine. New owner walked away this year. Landlord came after us. We came to agreement and paid him.
Customer reply replied 4 months ago
no files to add
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 4 months ago

There are a couple of ways to report this, and how depends on your circumstances.

Since you sold your business two years ago, part of the transaction was the lease guarantee. You could amend the prior year reporting, as the return is still open for amendment, and report the lease guarantee as part of the expenses of sale, and revise the gain/loss.

You could also try to claim the loss currently as a business bad debt, which is reported on 1040, line 36, other losses. Most software opens a supporting schedule you can use to claim the loss. This is not the best option as you do have to show you actively tried to collect from the purchaser. Such proof includes collection letters, lawsuits, attorney correspondence, etc.

Last is a nonbusiness bad debt, which is a capital loss reported on schedule D.

How you report depends on your collection efforts and what works best. I suspect the amendment is the cleanest, as it does not require the collection proof that IRS may request if you file a business bad debt claim.

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Tax Professional: PDtax, Certified Public Accountant (CPA) replied 4 months ago

I can offer a phone call to explain the differences and discuss your specifics. Accept if you're interested.

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Tax Professional: PDtax, Certified Public Accountant (CPA) replied 4 months ago

phone call offer made.

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Customer reply replied 4 months ago
Since we were on the lease, we negotiated with landlord and paid him to end additional costs. The landlord attempted to collect from him with no luck. The person that defaulted on the lease also owes us money. We will continue to pursue that into 2017 and deduct that loss at the end of the year if not successful-which is highly probably.
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 4 months ago

Then you can't claim a business bad debt. Best is amending your 2015 return to report the additional costs of sale.

Business bad debts are only deductible in the year you can support that the debt is not collectible.

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