Also, you must make your claim in the tax year that the debt became worthless. As pointed out above, if you do not have other capital gains that the loss can offset, then only $3,000 per year can be used to offset ordinary income so at $3K/year it will take 5 years to claim it all. Any amount not used in a given year will carry to the next yea but DO NOT SKIP a year, even if you have no taxable income to claim for that year. If not claimed for any year, even if the deduction will be zero for that year, will forfeit any reaming amount from carrying forward to the next year.
That is a mistake that many taxpayers make - they think it need only be claimed if there is enough taxable income to receive a deduction and then don't understand why the IRS disallowed the deduction.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
