Business Loss Limitation 461 i (large loss)

Technical topics regarding tax preparation.
#1
eze  
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311
Joined:
8-May-2014 7:02pm
Location:
Grey Area, California
I searched forum and there doesn't seem to be too many issues discussed. But I'm dealing with a multi-million dollar loss and I'm seeing two tax traps that just seem like complete BS....I realize there is no shortage of BS in the tax code.

One, Interest coming in on the same K-1 would be taxable. You could lose $5mm in ordinary loss, limit to $262k, but interest from the same k-1 generates tax. I understand taxation of portfolio-type income versus business loss, but this seems like a very bad result.

Two, same $5mm loss, limited by $262k....my beginning basis of $3mm is driven to zero. I lost millions of tax basis for a deduction of $262k. I still have a large layer of basis limitations to work with to offset future income...but what if I sold the business? I've got zero basis where I had $3mm last year.

I'm running different scenarios through ProConnect and it isn't pretty. I would love to be told that I'm completely wrong on this...someone please tell me I'm wrong.
 

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