Debt Loss

[nf168]

Hello all, I had a question about debt loss.  I made a real estate crowd funding loan.  They been paying interest monthly and received a 1099-int on interest the last 2 years.  This last year, they property owner defaulted and they had to repossess the property and sell it.  Only partial of the principal was returned.   How/where do I go about claiming the loss of the principal on the tax return?  Thx!

[Carl]

Do you have formal paperwork where you can hold the borrower legally liable? Being you mentioned "crowd funding" this matters. If you don't have formal legally recognized loan paperwork like a bank would have that made a mortgage loan, then your loss is a personal loss. Personal losses are never deductible.

You say "they" had to foreclose and repo the property. This indicates to me that you were not the original owner of the property prior to the sale, and you are not an owner after the foreclosure and repo. If so, your losses are personal and are not deductible at all.

[Anonymous]

the tax laws are not clear on crowd funding loans.  In addition most of the websites provide little or no tax info on reporting requirements (many are not US based)

here are a couple of articles

https://blog.taxact.com/tax-deductions-non-business-bad-debts/

https://www.irs.gov/taxtopics/tc453

https://www.irs.gov/pub/irs-pdf/p550.pdf  see page 54

[nf168]

I found the original paperwork and it's listed as: Series Issuance of 2016B Borrower Payment Dependent Notes.  Do you think I can claim it as bad debt?  I think the loss is relatively small ~$100, is it worth the hassle to claim it at all?

[Carl]

Don't waste your time. With "any" kind of a  loss you first have to reduce the loss by $100. No need in covering the other stuff since what you have is not deductible anyway. Besides, as of 2018 if this would be classified as a personal loss, personal losses are just flat out no longer deductible anyway.