Can we deduct a loss as a creditor of a business that went bankrupt? If so, how?

[montanawetz]

We were engaged with a builder in 2015 who filed for bankruptcy before starting construction. We lost the down payment we posted to start construction. Creditor losses were declared uncollectible by the bankruptcy judge (limited assets).

[PatriciaV · Accepted solution]

Yes, you may be able to claim a non-business bad debt for the loss of your money.

The easiest way to find this section of TurboTax is to use the Search box at the top right side of the TurboTax header. Click on the magnifying glass, type in "bad debt, non-business", hit Enter, and click on  "jump to bad debt, non-business" to go directly to beginning of this topic.

• In response to "Did you Sell Any Investments in 20XX" select yes.
• On the next page for "Did you get a 1099-B..." say "No"
• On the next page select "Uncollectible Debt"
• The next page will show the data you need to enter for the debt.

For more information, see IRS Pub 17 Nonbusiness Bad Debts