Yes, you can claim this as a short-term capital loss in the year the debt becomes worthless as long as
- there is an actual contract of the promissory note with the amount of the loan, interest rate, and repayment terms
- you can demonstrate that you don't have any hope of collecting any of what you are owed
This would be claimed in Part I of Form 8949.
To enter a non-business bad debt, follow the steps below.
• Click on Federal Taxes (Personal using Home and Business)
• Click on Wages and Income (Personal Income using Home and Business)
• Click on I'll choose what I work on (if shown)
• Under Investment Income
• On Stocks, Mutual Funds, Bonds, Other, click the start or update button
Please see this TurtoTax Tip for more information.
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