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Lost Collateral on Secured Loan - how to set up for best outcome

Reading the other thread, I am wondering how one might set up the best scenario, in advance, when loaning money or guaranteeing a loan. If you just loan money or guarantee a loan for another person's business, when the debt turns bad, you will have a non-business bad debt (unless, I assume, you are in the business of loaning money). What if you included terms that would allow you to convert the debt to equity in certain circumstances? Would that make it a business debt?

Reply to
Pico Rico
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The best way is to ensure the business is a C corporation and get section 1244 stock. There are restrictions on which corporations can issue 1244 stock, such as the capital of the corporation must be under $1M and not too much passive income. You can deduct 50,000 or 100,000 if married of loss on section 1244 stock. The loss is ordinary, which I imagine means it appears on Line 21 as negative income as opposed to on Schedule D. But I only read about 1244 stock; never seen it.

Reply to
removeps-groups

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