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cws2241
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I loaned money to a relative who admits she owes repayment via written response, but refuses to make repayment. Is this deductable?

 
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I loaned money to a relative who admits she owes repayment via written response, but refuses to make repayment. Is this deductable?

You must either first get a court judgment or be able to show that a court judgment would not be collectible if you had one, such as the person has filed for bankruptcy or is insolvent or some other reason that it would not be collectible.

ISee IRS tax topic 453

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

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.


**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

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3 Replies

I loaned money to a relative who admits she owes repayment via written response, but refuses to make repayment. Is this deductable?

You must either first get a court judgment or be able to show that a court judgment would not be collectible if you had one, such as the person has filed for bankruptcy or is insolvent or some other reason that it would not be collectible.

ISee IRS tax topic 453

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

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.


**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

I loaned money to a relative who admits she owes repayment via written response, but refuses to make repayment. Is this deductable?

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I loaned money to a relative who admits she owes repayment via written response, but refuses to make repayment. Is this deductable?

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