I was a non-passive partner in an S Corp for three years, then it was shut down in 2006. I invested $5000 at the beginning (plus no salary, etc.). Remaining money came from investors. I "wrote off" the $5000 in the first tax year (sufficient losses). The last year`s K-1 shows a small loss ($3000) plus approx. $14,000 long-term capital gain (partners all invested $25000 total personally and company sold for approx. $90,000 which went to the investors). We received no cash personally as a result of the sale. We had a loss each of the three years in business
How do I offset the capital gain on my personal taxes? We have no short or long-term capital losses. I have no "at-risk" investment beyond the $5000 already claimed.
I consulted an accountant who said I could use form 6198 but it appears that it also refers only to at-risk investment. Since the other money came from investors, that money is not "at-risk" for me. They were not personally guaranteed loans. He said I left losses on the table and therefore I can use those losses to offset the gains. But my review of the instructions for form 6198 and IRS publication 925 don`t seem to support that.
Do I have to take a hit for the the long-term capital gains on my personal taxes even though I didn`t "benefit" directly from it and we had losses all three years? Yes, the company benefited. Also, the investors received only 25 cents on every dollar invested.
A recommendation for a good accountant with S Corp experience in the Southeast Michigan area would suffice for an answer. Thanks much for any replies.