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You will report the loan as a loss, and that amount of loss is then treated as a short-term loss.
Enter the loan as an investment, (you can type 1099b into the search-box and then click the Jump to 1099b link).
For the cost basis, enter the outstanding loan amount.
For the net proceeds, enter (0).
"How to report the loss
The actual task of reporting a bad debt is relatively simple. The steps are:
- Complete Form 8949 Sales and Other Dispositions of Capital Assets
- Enter the amount of the debt on line 1 in part 1, and write the name of the debtor in column (a)
- Enter your basis in column (e)—the amount of money that has not been paid back
- In column (d), write 0—the amount the borrower did not repay
The IRS also requires that you attach a bad-debt statement to your tax return, explaining the details of the loan you made. You must deduct a bad debt in the year it becomes worthless. If you realize you could have reported and taken a deduction for an unpaid debt years ago but didn't, you generally have only three years to amend your return in order to claim it on your tax return.
How to deduct bad-debt loss
Generally, you can't take a deduction for a bad debt from your regular income, at least not right away. It's a short-term capital loss, so you must first deduct it from any short-term capital gains you have before deducting it from long-term capital gains.
Finally, you can deduct up to $3,000 of any remaining balance from other income. If a balance still remains, you can carry it over to subsequent years."
Bad Debt Info From TurboTax
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