There is no deduction for loaning anyone money, in fact, you will need to declare the income received or added to the loan each year.
Under certain conditions, it is possible to write off a loan gone bad. See tax topic 453 at
http://www.irs.gov/taxtopics/tc453.htmlThe loan should be in writing, charging a competitive interest rate, you have declared the interest on your tax returns, you must be able to show what specific steps you took to collect on the loan, possibly to the point of taking the party to court. Expect an uphill battle with the IRS with the burden of proof on you.
