Bankrupt LLC/Members pay off loans

[Jill Graff]

Taxpayer set up a single-member LLC to buy into a hotel building LLC (taxed as a partnership) in a fracking area. Unfortunately, the fracking stopped and the hotel project went bust and has gone through bankruptcy. The members, as part of the settlement, are required to pay off loans to the bank. My taxpayer has a basis of $83k and has to pay another $50k for his share of the payoff of the loan.

Does this just appear as a Sch D item with a $133k long-term capital loss?

Thanks for anyone's input.

[spanel]

Taxpayer set up a single-member LLC to buy into a hotel building LLC (taxed as a partnership) in a fracking area. Unfortunately, the fracking stopped and the hotel project went bust and has gone through bankruptcy. The members, as part of the settlement, are required to pay off loans to the bank. My taxpayer has a basis of $83k and has to pay another $50k for his share of the payoff of the loan.

Does this just appear as a Sch D item with a $133k long-term capital loss?

Thanks for anyone's input.

Both seem to me that they are contributions to the hotel LLC and any losses should be reflected on the K1 that he receives year end. He has a basis of $133000 to take losses up to that amount (plus/minus prior years income/loss)

Chris

[Snaggletooth]

Loans are probably in Basis

Jill, I'm missing something. A single-member LLC cannot be a partnership. But I'll proceed as if the LLC is, in fact, a partnership.

A member's basis in the partnership includes personal guarantees for loans (as opposed to an S corp where it cannot).
The prorated portion of the loan applies to the basis of each partner. Many such loans have "joint and several" liability, meaning each partner is responsible for the entirety of the loan in the event some partners cannot pay their prorated portion. If this happens, member's basis is adjusted for additions or relief of their prorated portion as it occurs.

Sounds like the discussion above has the potential to be relevant in your situation.

[Super Mom]

Ok this is off topic but I have a question. A single member LLC can become a multi member LLC and file the 1120 when applicable instead of the C they have been filing on. Right?

[spanel]

Ok this is off topic but I have a question. A single member LLC can become a multi member LLC and file the 1120 when applicable instead of the C they have been filing on. Right?

If they add 1 member, they then become by default a partnership that HAS to file a 1065. They have to opt in to be taxed as a corporation with 2553 (S Corp).

Chris

[kathyc2]

Ok this is off topic but I have a question. A single member LLC can become a multi member LLC and file the 1120 when applicable instead of the C they have been filing on. Right?

By default, a single member LLC files Sch C (or F or E if applicable). They can elect to be taxed as a C or S corp.
By default, a multi-member LLC files 1065. They can also elect to be taxed as a C or S.

A single member LLC can not file a 1065, nor can a multi member LLC file a Sch C.

[Super Mom]

I'm sorry, I meant a 1065. When the married couple adds another member I'm assuming we just stop fiing the C they have been filing and do the 1065. Right?

[kathyc2]

I'm sorry, I meant a 1065. When the married couple adds another member I'm assuming we just stop fiing the C they have been filing and do the 1065. Right?

Unless it's in a community property state, a LLC where husband and wife are both members should already be filing a 1065, unless electing to be taxed as a corp.