Yes. You have it. This is considered a Nonbusiness Bad Debt. Even though this was related to a business transaction, you were not the business owner. The transaction will be reported on Form 8949 and summarized on Schedule D. You can only deduct up to $3,000 of losses against earned income each year. You will carry the losses forward until used in full through offsetting future gains or the $3,000 per year deduction. You can see more information in the link below:
Bad Debt Deduction
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