Discussion:Sole Proprietor Sale Recourse Debt Assumed

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Discussion Forum Index --> Tax Questions --> Sole Proprietor Sale Recourse Debt Assumed

DianeOffutt (talk|edits) said:

18 February 2006
Hi Everyone,

Boy this forum REALLY is taking off. I am hoping someone can shed some light on my current situation:

My client, a Sole Prop (3 Yrs) family illness resulting in a quick sale. Sale of Business $20K, Assets Book Value $10K, FMV approx same. I am looking at this part of the sale as a Capital Gain Sec 1231 Assets 10K.

Then the next part, my client has recourse debt $50K in the company name, but since a Sole Prop, my client 100% liable. The debt was originally $60K, but the past year paid down to $50K.

Then I see an owner draw account showing $30K. My gut instinct, take the $50K subtract the owner draws of $30, resulting in a net $20K loss to my client. If I am right (and I hope I am) is it a Capital Loss, subject to $3K annual..OR is it an ordinary loss? I really will appreciate all feedback, especially if you can cite your reference (for my backup).

I thank you in advance,

Diane Offutt Accounting Connections, LLC Woodstock, Ga. 30189

Riley2 (talk|edits) said:

18 February 2006
If you are asking if a sole proprietor can claim a loss for business indebtedness for which he is and always was personally liable, the answer is no.

DianeOffutt (talk|edits) said:

22 February 2006
Thanks Riley2. After I sent the question to this forum I realized my error. I should have thought it out a bit more before sending.

Diane Offutt

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