At Risk Question

Technical topics regarding tax preparation.
#1
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OH
I have a 1040 client who has someone funding real estate purchases for them, mostly flips, which have profitable. However, the client confirmed that they are not signing any guarantees to pay back what they are calling "private investors/funds". I'm sure its a close friend or family member.

In 2018, the client invested as a partner in a commercial piece of real estate with 2 other people. The transaction ended up being a disaster and the client ended up in a legal battle as the 2 other investors basically used my client to close the deal and tried to rip it out from underneath her.

Out of the $181,000 that the client invested in she was able to recover 95,000 through the lawsuit.

Since my client is not guaranteeing to pay back the funds, the 86Kloss is non deductible due to At Risk limitations, correct? Since this was for a commercial piece of real estate I'm assuming that it would be a capital loss. The client has contacted the other investors who will not communicate with her so the assumption is no partnership return will be filed. I believe the client's lawyer tried contacting the other lawyer.

Thank you!
 

#2
Nilodop  
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Pennsylvania
Seems to be missing some info. Plus maybe misunderstanding at-risk limits.

Does the info in your first paragraph have anything to do with what happened as described in the second paragraph?

Was the $181k really invested, as in paid in? If not, how does shehave an $86k loss? If yes, then it was at risk and is deductible.

Not at all clear about the type of loss. What does "commercial" have to do with it? Was there an entity, and if so, what kind? And what was her relationship to the entity? And how long was it held? And was this to be a flip or a rental?

I reserve the rught to keep asking stuff.
 

#3
supdat  
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New York
Not sure based on your facts, but it sounds like your client may be acting as a nominee for the investors, possibly in exchange for a share of the profits. I believe there are some rules scattered around out there on nominee reporting.

I assume your client remitted back the $95,000 to the person who fronted the $181,000 for the investment?
 


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