To report a nonbusiness bad debt In TurboTax Online Premium, follow these steps:
- Down the left side of the screen, click on Federal.
- Down the left side of the screen click on Deductions & credits.
- Scroll down to Other Deductions and Credits, scroll down to Nonbusiness bad debt. Click Start/Revisit to the right.
- At the screen Claiming a Loss on a Debt, select all options that apply.
The questions and answers generate the bad-debt statement which the IRS requires.
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.
Generally, you cannot take a deduction for a bad debt from your regular income, at least not right away. It is reported as 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.
See also this TurboTax Help.
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