Unpaid rental fees for tools and equipment they still have the goods. Can I deduct any loss?

Question

1. I bought items (my solo LLC business did actually) to lease to a another business
2. I went into debt to buy these
3. The business never paid me rent
4. The business still has the items; they never went officially out of business but they are not doing business
5. I had to pay for these items and they are all paid off in 2006 after paying on them for about 2 years
6. I use cash accounting
7. My business went out of business in 2006
8. I consider the debt uncollectibel and cannot recover the property which is in the former lessee business owner's possession. I do not know where they are.

Can I file a business loss for my (late filing under an extension) business? I know this is cash method BUT I had these items essentially taken from me without payment and I'm out a bundle/

Answer 1

The rent you were never paid is not a bad debt. Nor is the loan you took out for the equipment, so that is not a bad debt.

If they stole the items, you may have a casualty/theft loss for the amount you paid for the equipment that has not already been depreciated.

Answer 2

Loss of income for a Cash basis taxpayer is never deductible.

Alot depends on how they were treated for tax purposes when you bought them. If you deducted them when you bought them, there are no additional deductions available.