If you have a non-business bad debt, you can take the deduction when the debt becomes totally worthless.
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 of payment. 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 (PDF), Sales and Other Dispositions of Capital Assets, 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.
IRS Service Center Advice (SCA) 1998-020 addressed whether “an individual or entity not required to file a Form 1099-C under Section 6050P of the Internal Revenue Code [may] nevertheless voluntarily file the form.” SCA 1998-020 discusses Sec. 6050P, what information needs to be filed with the Form 1099-C, and what constitutes an identifiable event. The memorandum states that,
While the requirement to report discharges of indebtedness applies only to the entities described above, there is no specific prohibition in the Internal Revenue Code or the Income Tax Regulations that forbids the reporting of discharges of indebtedness by entities not required to report. Such reporting may encourage voluntary tax compliance and proper gross income inclusions.- See more at: http://www.thetaxadviser.com/issues/2012/dec/clinic-story-11.html