I am the guarantor of a bank business loan for a C-Corp that I co-founded in 2000. The loan was taken out around 2003 and was used for payroll for the co-founders, who materially participated in the business (as full time employees) when the loan was incurred. The corporation closed this year (2019) leaving me and the other founder to pay off the business loan (about $10k each) which we paid this same year. According to Sec 166 of the tax code, I can deduct the amount of the loan guarantee that I paid to the bank as a Bad Business Debt. However, I do not see where to do this. The guidelines I have seen say that you pay off a Bad Business Debt on Schedule C, but I am the guarantor, an individual, not a business. Do I handle it on Schedule C as if I were a sole proprietor? The law is pretty clear that as a guarantor who materially participated in the business as an employee, that I can claim Bad Business debt and not NonBusiness Debt (which caps at $3000). But I just do not have a clear sense of what form/line to use in TurboTax for this. Thanks in advance for all advice.
