Solved: I loaned money, by note, to an entity which will not pay the loan, can i write it off as a deduction?
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hlholdsclaw
New Member

I loaned money, by note, to an entity which will not pay the loan, can i write it off as a deduction?

The loan was made to a charitable museum which can not pay any payment .
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Ashby
New Member

I loaned money, by note, to an entity which will not pay the loan, can i write it off as a deduction?

You can take a deduction for a nonbusiness debt only if the entire debt is uncollectable. You do not have to wait until the entire debt is overdue to determine whether it is worthless. Nor do you have to file a lawsuit to collect the debt, obtain a judgment against the debtor, and then try, unsuccessfully, to collect on it — a process that can take years.

All that is required is for you to show that there is no longer any chance that the loan will be repaid. Obviously, you must show that you took reasonable steps to collect the debt. But even such collection efforts would not be required if the debtor files for bankruptcy, since such a filing stops all debt collection efforts by the debtor’s creditors.

Nonbusiness bad debts are treated as short-term capital losses. Such losses are first deducted from your short-term capital gains, if any. If your net short-term loss exceed your short-term gains, your net short-term capital losses are then deducted from your total long-term capital gains for the year. If your net short-term loss exceeds the long-term gain, the excess short-term loss is deductible against up to $3,000 of your other income. Any amount remaining can be carried forward and deducted in future years. 

  • Report this in TurboTax by using these steps:
    • In the search box, upper right type nonbusiness bad debt > Jump to nonbusiness bad debt
    • Continue to the screen Choose the type of investment you sold
    • Select Uncollectible Debt (Nonbusiness Bad Debt)
    • Continue to enter your information.  

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1 Reply
Ashby
New Member

I loaned money, by note, to an entity which will not pay the loan, can i write it off as a deduction?

You can take a deduction for a nonbusiness debt only if the entire debt is uncollectable. You do not have to wait until the entire debt is overdue to determine whether it is worthless. Nor do you have to file a lawsuit to collect the debt, obtain a judgment against the debtor, and then try, unsuccessfully, to collect on it — a process that can take years.

All that is required is for you to show that there is no longer any chance that the loan will be repaid. Obviously, you must show that you took reasonable steps to collect the debt. But even such collection efforts would not be required if the debtor files for bankruptcy, since such a filing stops all debt collection efforts by the debtor’s creditors.

Nonbusiness bad debts are treated as short-term capital losses. Such losses are first deducted from your short-term capital gains, if any. If your net short-term loss exceed your short-term gains, your net short-term capital losses are then deducted from your total long-term capital gains for the year. If your net short-term loss exceeds the long-term gain, the excess short-term loss is deductible against up to $3,000 of your other income. Any amount remaining can be carried forward and deducted in future years. 

  • Report this in TurboTax by using these steps:
    • In the search box, upper right type nonbusiness bad debt > Jump to nonbusiness bad debt
    • Continue to the screen Choose the type of investment you sold
    • Select Uncollectible Debt (Nonbusiness Bad Debt)
    • Continue to enter your information.  

View solution in original post

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