Are unpaid court judgments deductible at all? I

[steve701]

I won a court judgment in the amount of $15,000 from a company. The company closed up and the owners fled the country without paying. Information I've found online is at best confusing or contradictory. 

Would this be deductible?  Is there a statute of limitations on this?

Thanks

[Bsch4477]

There is no deduction but if business related you might deduct legal fees. 

[AmeliesUncle]

The "judgement" itself wouldn't be deductible, but if you give details about the situation and why the court tried to award you money, in SOME situations the circumstances behind the judgement could lead to a tax deduction of some sort.

[Opus 17 · Accepted solution]

You can never take a tax deduction for income that was never paid — you can’t subtract from something you never got.  

If this was related to your business, then you might have business costs you were trying to recover.  Those costs should already have been deducted as regular business expenses when they happened.  Plus your attorney and court costs would be business expenses.   If you were paid, that would be taxable income.  The fact that you haven’t been paid means you don’t pay income tax because you don’t have the income, that’s your tax “reduction” for not being paid.  

If it’s a personal situation, there’s nothing to deduct anyway in most cases, and you still can’t subtract something from your income that was never part of your income to begin with.  

[steve701]

Ok, thanks for the input everyone. I should have mentioned it was a personal, not business case.

I was thinking along the lines of it being  something like a "bad debt"..

Unfortunate to think that scum got away with everything....

[Opus 17]

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@steve701 wrote:

Ok, thanks for the input everyone. I should have mentioned it was a personal, not business case.

I was thinking along the lines of it being  something like a "bad debt"..

Unfortunate to think that scum got away with everything....

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A non-business bad debt could be deductible, but you have to have a real loss, not just an unpaid judgement.  In other words, if you already paid someone $15,000 out of your existing funds, and they failed to do whatever was promised in return, that can be treated as a bad debt (non-business meaning you are not in the business of being a lender).  

Or to explain another way, if someone promised to pay you something that would have been taxable income to you and they don't pay, your tax "reduction" is that you don't have income so you don't pay tax, but you can't take a separate deduction.   But if you pay someone else and they don't pay you back (in money or services) then you have a deductible bad debt.  I think we didn't ask enough clarifying questions about the judgement. 

You need to have a legitimate contract with them (so lending money informally to a family member who doesn't pay you back is almost never allowed); and you must have exhausted all reasonable efforts at collection.  Then, the bad debt is treated as a capital loss, you can deduct up to the amount of your capital gains this year, plus $3000, and carry forward any remaining undeducted amount to the next tax year.

Do you want to clarify the circumstances of the judgement?

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

[steve701]

I'm good. I understand now.  The lawyer did not charge a fee so I've had no out of pocket expenses.  Really burns me the lowlife got away scott free..

Once again, many thanks!