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S corp- Ordinary loss deductability


mircpa

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Hello all

S corp tax client purchased business assets work 50K with bank loan. Due to special depreciation rules all 50K is depreciated & shows up as ordinary loss. Stock & debt basis is 0. All 50K is ordinary loss but cannot claim due to 0 basis. He is planning to sell business next year. I was wondering how to handle 50K b'coz next year it might turn back & depreciation recapture will become ordinary income. Losses on form 6198 carryover this amount to 2019. Does next year's positive ordinary income knocks off this ordinary loss from prior year  or do taxpayer gets to knock off this amount on Sch D as adjustment if in case assets sold ?

Thanks

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9 minutes ago, mircpa said:

Hello all

S corp tax client purchased business assets work 50K with bank loan. Due to special depreciation rules all 50K is depreciated & shows up as ordinary loss. Stock & debt basis is 0. All 50K is ordinary loss but cannot claim due to 0 basis. 

Thanks

1. You have condensed the details to the point that it's unclear as to what the actual situation is ?

2. Who did the bank loan the money to ?

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OK. Its clear I will go with basis limitation worksheet not 6198. My question is since it is showing 50K ordinary loss in current year which cannot be deducted because 0 basis. Does taxpayer gets to offset 50K losses with next year's ordinary income (in case it has ordinary income greater than 50K) ?

My worry is if this business is sold next year whole amount 50K would show up in ordinary income (depreciation recapture) from capital gain.

Thanks to all who responded.

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