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Level 1
March 29, 2026
Question

Non business bad debt to be reported

  • March 29, 2026
  • 1 reply
  • 373 views
Hi everyone, I’m working on my 2025 tax return and could use some guidance on how to properly report a loan that I believe is now uncollectible. Back in 2019, I lent $30,000 to an LLC (formal promissory note, interest-bearing, tied to a real estate project). The terms specified repayment upon sale/refinance of the property. The property was eventually sold, but I never received any repayment. I recently learned that: * The LLC is now out of business * There appears to be no personal liability for the owner * A debt collection agency has suspended efforts due to lack of recovery prospects At this point, I believe the debt is effectively worthless. My questions: 1. Is this correctly treated as a **nonbusiness bad debt (short-term capital loss)**? 2. Is 2025 the right year to claim the loss based on when I determined it’s uncollectible? 3. On Form 8949, is it correct to report: * Proceeds = $0 * Basis = $30,000 * Description as “Nonbusiness bad debt”? 4. Are there any additional statements or documentation I should include with the return? I want to make sure I handle this correctly and defensibly. Thanks in advance for any insights!

1 reply

Level 15
March 30, 2026

Is this correctly treated as a nonbusiness bad debt?

 

This TurboTax Help states:

 

To be deductible: 

 

  • The debt must be a bona fide loan with an expectation of repayment and may include interest and a promissory note.
  • The debt must be 100% worthless before it can be deducted.
  • Documented efforts to collect the debt must be made, such as letters, invoices, and phone calls.

Is 2025 the right year to claim the loss based on when I determined it’s uncollectible? 

 

A bad debt deduction must be taken in the year it becomes worthless.

 

On Form 8949, is it correct to report: * Proceeds = $0 * Basis = $30,000 * Description as “Nonbusiness bad debt”?

 

Correct, and it is reported as a short-term capital loss.

 

Are there any additional statements or documentation I should include with the return?

 

Code the transaction as a nonbusiness bad debt and TurboTax prepares the appropriate additional statement or worksheet.

 

In addition, IRS Publication 550, page 84, explains nonbusiness bad debts.

 

To enter the form manually In TurboTax Premium Online, follow these steps: 

 

  1. Down the left side of the screen, click Federal.
  2. Down the left side of the screen, click Wages & Income.
  3. Click the down arrow to the right of Investments and Savings.
  4. Click to the right of Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B).
  5. Click Add investments.
  6. On the Let's find your account screen, select Enter a different way.
  7. On the How do you want to add your docs? screen, select Type it in myself.
  8. On the OK, let's start with one investment type screen, select Other, then Continue.
  9. At the screen Tell us more about this sale, enter the information.  Click Continue.
  10. On the screen Now, enter one sale for nonbusiness bad debt, enter the information.
  11. What type of investment, select Other.
  12. How did you receive it, select Something else.
  13. Enter the the term 'worthless' within the Description.
  14. Report it as a short-term sale.
  15. Enter $0 for Proceeds.
  16. Enter the amount of the loss for Cost or other basis.
  17. Select Continue.
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