I have a potential client who was selling his business on an installment agreement. After a couple of years the new owner defaulted on the loan and there was nothing physical to reprocess. At ths time the client is a W2 employee and does not have business expenses. Is this loss of his remaining basis a normal capital loss. On the advice of another tax person he waited two or three years to report his loss then took it as a normal business loss. The IRS rejected the business deduction. Should we amend to a schedule D loss subject to the $3000 cap.
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Dianne K -
If there was nothing physical to repossess, then what did the sales price consist of? Goodwill? C-N-T-C? -
Dianne
Check out this earlier thread that sounds very similar to your problem. You may find something in it that will help. There is another thread that pertains to this, but I cannot find it right now.
DennisComment
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It depends on what was originally sold under the installment method. Repo of personal property is reported differently than the repo of real property.
IRS Pub 537 says:
Gain or loss on the repo also means you need to calculate basis in the installment note.You report gain or loss from a repossession on the same form you used to report the original sale. If you reported the sale on Form 4797, use it to report the gain or loss on the repossession.
Information on all of this is found in IRS Pub 537. I suggest you get that Pub and study up on all of it.Comment
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