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!