Deduction

[Shemanski]

I lost over $300,000 on a loan in 2019 when the borrower defaulted and then filed bankruptcy. Can I amortize this loss over several years or must I take the entire amount for 2019? If the answer is all in 2019, can the loss be carried forward similar to the capital gain cap of $3,000 per year.

[DoninGA]

A bad debt is when someone owes you money you cannot collect. You can claim a bad debt ONLY if you have previously reported the value of the debt as income you received.

However, if you loaned money to someone that you had previously included in your income and the person did not pay you back, then you have a bad debt.

To be deductible, nonbusiness bad debts must be totally worthless. The deduction can be taken in the year the debt becomes worthless. Nonbusiness bad debts are always treated as short-term capital losses.

IRS Tax Topic - https://www.irs.gov/taxtopics/tc453

[VolvoGirl]

So yes.  It is the same as capital losses.  You take 3,000 per year and carryover the rest.  Or actually it first is used against your gains then you take a max of 3,000.  So it might use up more in one year.  Which is good if you want to sell something with gains.

[Anonymous]

first it must be determined whether the bad debt was business or non-business.  this is from IRS  topic 453 - bad debt deduction

Business Bad Debts - Generally, a business bad debt is a loss from the worthlessness of a debt that was either created or acquired in a trade or business or closely related to your trade or business when it became partly to totally worthless. A debt is closely related to your trade or business if your primary motive for incurring the debt is business related. You can deduct it on Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship) (PDF) or on your applicable business income tax return.

The following are examples of business bad debts (if previously included in income):

Loans to clients, suppliers, distributors, and employees
Credit sales to customers, or
Business loan guarantees

A business deducts its bad debts, in full or in part, from gross income when figuring its taxable income. For more information on methods of claiming business bad debts, refer to Publication 535, Business Expenses.

Nonbusiness Bad Debts - All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible. You can't deduct a partially worthless nonbusiness bad debt.

A debt becomes worthless when the surrounding facts and circumstances indicate there's no reasonable expectation that the debt will be repaid. To show that a debt is worthless, you must establish that you've taken reasonable steps to collect the debt. It's not necessary to go to court if you can show that a judgment from the court would be uncollectible. You may take the deduction only in the year the debt becomes worthless. You don't have to wait until a debt is due to determine that it's worthless.

Report a nonbusiness bad debt as a short-term capital loss on Form 8949, Sales and Other Dispositions of Capital Assets (PDF), Part 1, line 1. Enter the name of the debtor and "bad debt statement attached" in column (a). Enter your basis in the bad debt in column (e) and enter zero in column (d). Use a separate line for each bad debt. It's subject to the capital loss limitations. A nonbusiness bad debt deduction requires a separate detailed statement attached to your return. The statement must contain: a description of the debt, including the amount and the date it became due; the name of the debtor, and any business or family relationship between you and the debtor; the efforts you made to collect the debt; and why you decided the debt was worthless.

because you much attach a statement to return if NBBD, you won't be able to e file.