Bad Debt

[Bobdiehm]

I paid  a handyman for a contract he failed to perform in 2021. Can I write the amount paid off on my 2021 personal tax return?

[MinhT1]

It depends.

1. If the contractor failed perform and simply took off with your money, then it would be a theft and casualty loss and would not be deductible.

The tax treatment of personal casualty losses and thefts is changed under the Tax Cuts and Jobs Act. Pursuant to the TCJA, the itemized deduction for personal casualty and theft losses is temporarily limited in tax years 2018 through 2025 solely to losses attributable to federally-declared disasters.

2. If the contract went bankrupt and you failed to recover your money, this  would be a non-business bad debt and you could report it as a short-term capital loss.

Please read this IRS document on the treatment of non-business bad debts.

[TomD8]

No.   For tax years 2018 through 2025, you can no longer claim theft losses on a tax return unless the loss is attributable to a federally declared disaster.