Personal guarantee on business loan

[gp1942]

Signed a personal guarantee in 2004 with a bank so that I could obtain a line of credit for the business I was operating as a S Corp.  Sold business in 2015 to new Corp. who were to assume all debts.  They paid off part of Line of Credit monthly until they had financial problems in 2018.  Business closed its doors in Jan 2019, numerous suits and unpaid bills.  Bank requested I pay off the line of credit for $29K.  On the hook because of personal guarantee.    Last 1120S done in 2016.

Is it a tax deduction and how?

[soultax09]

you're better off trying to claim a nonbusiness bad debt so you'd have a short term capital loss....this debt will be what the buyer of your business took on when your business was sold

[Anonymous]

really?   the buyer took a business bad debt!   it's a liability on their books and writing off a liability results in income - forgiveness of debt.      otherwise you saying that both the taxpayer and buyer took a deduction on the same debt.  that would be a violation of the tax laws.  

[Anonymous]

I would agree that yo have a non-business bad debt.  sadly, it's a short-term capital loss. net capital losses are limited to a deduction of $3,000 per year.  ($1,500 if Married filing separate)

there are some things you should do to preserve the write off in case the IRS questions it. do this even though any collection would be fruitless.  

make a formal demand for repayment - i would send it registered mail.  this way if they don't get it you have the envelope and letter inside to prove you made an attempt to collect