Discussion:Wage Garnishment for Prior busness rent
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Discussion Forum Index --> Tax Questions --> Wage Garnishment for Prior busness rent
| 11 May 2009 | |
| Member opened concession stand at a golf course in 2006, with rent due of $3,000 per year. They defaulted on the rental contract, for two years, $72,000. They never filed a schedule C, during 2006-2008, and now are having wages garnished for the back rent of $72,000, the two years of unpaid rent. How would they report the rent being paid through wage garnishment as a deduction on their tax return. and when should it be deducted? The business was operated for three years. | |
| 11 May 2009 | |
| Even a dead lawyer would have pointed out that the "landlord" had a duty to mitigate damages. Laches? Estoppel? Or, that by not enforcing the "lease" the the golf club essentially became their partner? I mean something! | |
| 11 May 2009 | |
| Yeah, but I bet a year's worth of rent they let the case go into default. | |
| 11 May 2009 | |
| Damndest thing, excuse the language. Maybe they were using a credit counselor instead of a lawyer. Either that, or they were using a credit counselor who tried practicing law.
Or, maybe this feller came in after the dust had already hit the fan. Assuming they let the case go into default, do your clients a favor and send them to a competent lawyer, and see if there is some how, some way he can get the underlying judgment set aside. It won't be easy. Perhaps they were not served properly. Worth a look. They will still have to fight the case, but at least they will have their day in court. | |
| 11 May 2009 | |
| Is it possible all parties are still friendly and this was worked out in good faith by both parties?
It does not answer the tax question -- I assume you deduct rent expense on schedule C for 24 years. | |
| 12 May 2009 | |
| The payments would have the same character that they would have if they weren't being collected by garnishment. | |
| 14 May 2009 | |
| Don't the expenses have to be taken in the year they "should have been paid".
If he is not engaged in the business now how can he justify a Sch C to expense the rent? This is a court ordered payment of funds owed, not rent being paid. I don't see how it is deductible. | |
| 14 May 2009 | |
| I think, TaxEA, it matters whether or not the business was ever started. If it was, these are expenses of a former business. If the business was never started, I believe they would be catagorized similar to business investigation costs. Maybe I'm confusing this with rentals, though, but I still think it matters whether or not there was ever a business. | |
Southparkcpa (talk|edits) said: | 14 May 2009 |
| Something sounds very wrong. Where did the tax liability come from????
Was a judgement granted the landlord and then a "foregiveness of debt"???? It would seem to me that if you have 72K of income through debt foregiveness, NEVER RECEIVED, you would then have rent expense of 72K. What am I missing????? | |
TheTinCook (talk|edits) said: | 14 May 2009 |
| Don't see any debt forgiveness.
Taxpayer was almost certainly cash basis. Deductions are allowed under §162 and §212 in tax years after the activity is closed. I see no problem with deducting the payments, garnishment or not. Still rent expense. Business was operated for three years, according to OP. So I don't think this is a start up costs issue. Even so, aren't project abandonment costs deductible. | |
