Hi @Thepalman - thanks for your interesting question.
It sounds like this would be considered a nonbusiness bad debt. This can be deducted as a short-term capital loss in the year where the debt becomes completely worthless.
Here is an IRS article about the topic, along with instructions on how to enter this in TurboTax. You do not need to attach the documentation to your tax return, as it will not be read by the system processing your return. However, I would be sure to keep all the documentation at least through the statute of limitations period for auditing that return (generally 3 years after the return was due or filed, whichever is later) so that if the IRS asks for proof, you will have it available to show.
Note that since this is a capital loss, it can fully offset capital gains if you have any, and the remainder will offset other income up to $3,000 per year with the remainder carried forward year after year until it is fully used. You do not get to deduct the entire loan amount against other income in one year.
I hope this information is helpful.
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