I had two non business bad debts where are they on the tax forms

[ksgarland]

they were loans to my children that will not be paid I have documents to prove it

[DianeW · Accepted solution]

You can take a deduction for a nonbusiness debt only if the entire debt is uncollectable. You do not have to wait until the entire debt is overdue to determine whether it is worthless. Nor do you have to file a lawsuit to collect the debt, obtain a judgment against the debtor, and then try, unsuccessfully, to collect on it — a process that can take years.

All that is required is for you to show that there is no longer any chance that the loan will be repaid. Obviously, you must show that you took reasonable steps to collect the debt. But even such collection efforts would not be required if the debtor files for bankruptcy, since such a filing stops all debt collection efforts by the debtor’s creditors.

Nonbusiness bad debts are treated as short-term capital losses. Such losses are first deducted from your short-term capital gains, if any. If your net short-term loss exceed your short-term gains, your net short-term capital losses are then deducted from your total long-term capital gains for the year. If your net short-term loss exceeds the long-term gain, the excess short-term loss is deductible against up to $3,000 of your other income. Any amount remaining can be carried forward and deducted in future years.

• Report this in TurboTax by using these steps:
• In the search box, upper right type nonbusiness bad debt > Jump to nonbusiness bad debt
• Continue to the screen Choose the type of investment you sold
• Select Uncollectible Debt (Nonbusiness Bad Debt)
• Continue to enter your information.  
• Click the image attached to enlarge and view

[macuser_22]

I would suggest that you study IRS Publication 550 page 57.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p550.pdf">https://www.irs.gov/pub/irs-pdf/p550.pdf</a>

The IRS is VERY likely to deny a bad debt for a loan made to your children.   It depends on the circumstances, if the children were adults, if there was a contract with a set amount of interest to be paid, what steps were taken to collect, if the children have filed for bankruptcy, etc.  

Not saying that is is not a real bad debt, but do not be surprised if the IRS makes you jump through hoops to prove it.  The IRS scrutinizes bad debts made to family members very closely because that if a red flag for fraud - gifts are not deductible so a gift is disguised as a loan in order to deduct it as a bad debt - very high IRS audit red flag.

Quote from Pub 550
"Loan or gift. For a bad debt, you must
show there was an intention at the time of the
transaction to make a loan and not a gift. If you
lend money to a relative or friend with the understanding
that it may not be repaid, it is considered
a gift and not a loan. You cannot take a
bad debt deduction for a gift. There cannot be a
bad debt unless there is a true creditor-debtor
relationship between you and the person or organization
that owes you the money.
When minor children borrow from their parents
to pay for their basic needs, there is no
genuine debt. A bad debt cannot be deducted
for such a loan"

[Lisa995]

"I have documents to prove it "
Are these are legal documents, like a signed promissory note or something?

[re2boys]

From IRS website:  <a rel="nofollow" target="_blank" href="https://www.irs.gov/taxtopics/tc453">https://www.irs.gov/taxtopics/tc453</a>
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.

As macuser pointed out, expect this to be questioned by the IRS.