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expenses on a sold business SCH C


ljwalters
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Client had tanning Salon business. Sold the business but the landlord would not let her out of the lease ((he didn't trust new owner (First clue)). Client also carried a note for $30K. In less than a year, new owner defaulted on the note quit paying the lease, and split with all the Tanning Beds EXCEPT the new one she purched that was also defaulted on. Client has tried to Lean assets on purchaser and found she owns nothing in her name. (Drives new Mercedes in dad's name, Has beautiful home in dad's name etc. Can't touch her). Land lord came back to my client and demanded the 3 Months lease, and required her to clean the place up to try to release building. Can she carry the old Sch C to claim these expenses incured in 2007 ( Business sold December 2006 ) sale was on 2006 Tax return. And how do we void the 6252 instalment sale.

Thanks Linda and Buddy

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>>she owns nothing in her name<<

She offered tens of thousands of dollars without so much as a credit check? Usually when you ask why, they say the buyer couldn't get financing by herself. Well, duh!

Anyway, whatever ongoing costs she has now are not for operating a trade or business, so throw them in to the capital loss.

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>>she owns nothing in her name<<

She offered tens of thousands of dollars without so much as a credit check? Usually when you ask why, they say the buyer couldn't get financing by herself. Well, duh!

Anyway, whatever ongoing costs she has now are not for operating a trade or business, so throw them in to the capital loss.

I would and have in the past put on line 21 Prior business expenses. Its oridnary income not capital loss.

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See Pub 537 for what you should do on repossession (or default) on an installment sale, relative to gain or loss realized.

The seller (your client) is effectively back in possession of the Schedule C activity, because of the default of the buyer,

and in my way of thinking the expenses being incurred is directly relatived to such activity.

Say for example if this had been an apartment building the issue is a little clearer because everyone will agree that upon repossession the seller is back in the rental business.

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She is incurring losses that are directly connected to a trade or business.

She is not in the business of selling her business, or repossessing it.

But for the original trade or business there would be no "expenses".

I am not saying "all" of the expenses are Schedule C, however, some, or most are.

First, do the repossession on the installment sale.

These expenses are not preparatory expenses to a business, nor is this a hobby loss.

The mere fact that upon repossession the taxpayer chooses to close what little remaining business there is does not remove her from once again being in a trade or business. She is merely choosing the least expensive way to cut the business losses.

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>>She is incurring losses that are directly connected to a trade or business.<<

Payments on a lease that is not being used by the taxpayer is hardly a trade or business. Such payments could however possible be considered as a business bad debt deductible on the same form where the type of income from the business that caused the debt would be reported.

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