C Corp Losses

[liltax]

I have a client who opened an Auto Sales business in 2003. He had a loss in 2003 & 2004 and decided to just close the business. Total loss around $38K.. Now, I am not sure if he can deduct any of that loss on his personal return as a sale of asset?

Thanks,

[Peachie]

Let me preface this by saying

I have a client who opened an Auto Sales business in 2003. He had a loss in 2003 & 2004 and decided to just close the business. Total loss around $38K.. Now, I am not sure if he can deduct any of that loss on his personal return as a sale of asset?

Thanks,

I am not well versed in Corporations, however, since a C Corp is not a flow through entity, I doubt if this could be considered for any kind of personal deduction. Someone else will come by to let me know why I need to become better acquainted with this form of business, I am sure.

Peachie

[liltax]

C Corp

I agree although my boss seems to think that it is a business investment and he lost money so he should be able to report the loss just as if he was buying stock?

[David1980]

Depends where the $38,000 loss is.

Going to what your boss says about it being like stock, let's say I buy 1 share of Microsoft today. I pay $29.

Tomorrow, Microsoft loses a lawsuit and has to pay $200 million.

To what extent can I deduct the $200 million on my personal return?

Now applying that to your situation. This $38,000 figure you have, where is that loss? Is that a C-corporation loss, or is it the basis of the individuals shares of stocks in the corporation?

[liltax]

Basis of Individual

The Owner put this money into the company. No loans or other people contributed. So, that would be his basis?

[Bees Knees]

If the owner put in $38,000 in capital stock, he can deduct $38,000 as an ordinary loss under Section 1244.

If the owner loaned the corporation $38,000 and the corporation cannot repay it, he has a $38,000 bad debt deduction, subject to the $3,000 per year loss limit on net capital losses.

[liltax]

If one person shareholder

Then how can you really say it was a loan or stock- just by where it was classified on balance sheet? It was not recorded as a loan so then he is limited to the 3000 a year and it needs to go on Schedule D.

Thanks for all your knowledge!

[Gretel]

If it was stock, owner should have stock certificates.

[Bees Knees]

It was not recorded as a loan so then he is limited to the 3000 a year and it needs to go on Schedule D.

No, its not limited to the $3,000 a year loss limit on Schedule D.

Read the Section 1244 rules. A single owner of a C corporation who was the originator of the corporation is entitled to treat up to $100,000 of stock losses as ordinary losses on Form 4797.