investment losses without a K1

Forum|Forum|11 months ago
April 25, 2025
1 reply
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we invested a significant amount of money in a local business that filed for bankruptcy and closed in 2024. They did not issue a final K1 but the business was a total loss. Can we still claim the losses on our taxes for that year? We have a promissory note for the amount of the investment and we are listed in the bankruptcy filings as investors.

Not A Product Question

Mike9241

you have a deductible loss. The question that we can't answer is whether it's an ordinary loss or capital loss.

Code Sec. 165(a) allows a deduction for
losses sustained during the tax year and not
compensated for by insurance or otherwise. A
loss deduction is permitted only for a tax year
in which the loss is sustained, as evidenced
by closed and completed transactions, and as
fixed by identifiable events occurring in that
year. [Reg. §1.165-1(d)(1).] A loss deduction
is typically ordinary in nature, but a loss
from the sale or exchange of a capital asset is
a capital loss. [Code Sec. 165(f).]
Rev. Rul. 93-80, 1993-2 CB 239, provides
that a loss incurred on the abandonment or
worthlessness of a partnership interest is an
ordinary loss if sale or exchange treatment
does not apply. If there is an actual or
deemed distribution to the partner, or if the
transaction is otherwise in substance a sale
or exchange, the partner’s loss is capital
(except as provided in Code Sec. 751(b)).

cherylsattAuthor

We loaned a business money and the business declared bankruptcy in 2024. It was an unsecured loan so we received nothing from the liquidation of the business. The business was supposed to pay interest on the loan but never did.

Vanessa A

You would enter this as an investment loss. Only the amount that you invested is to be included. You cannot enter the interest as it was never included in your income.

You would enter the loss by selecting the following:

Federal
Income
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Start next to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
Select Other
Continue through and select other for the type of investment
Answer how you obtained it (purchased it)
You will need to enter the selling price ($0 since you are not getting anything out of it), dates and the cost basis (loan amount)

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