Is there a income threshold for taking the Bad debt deduction?

[thenolenz5]

Loaned my brother money (7,200$) He failed to pay me back after much correspondence , had a sudden heart attack and passed away before repayment.

[LindaS5247]

You bad debt deduction will be limited to $3,000 per year until the balance is used up. 

To be deductible, the debt must have been a bona fide loan. It must have been made with the expectation of being repaid. If you charged interest, and the borrower signed a promissory note, that would verify that you expected to get your money back.  The IRS could consider the exchange to be a gift, particularly if the borrower is a friend or a family member.

The unpaid debt has to be 100% worthless before you can take a deduction for it. 

You must complete Form 8949, Sales and Other Dispositions of Capital Assets to deduct a bad debt.

A bad debt is considered  a short-term capital loss. You must first deduct it from any short-term capital gains you have before deducting it from long-term capital gains, and then you can deduct up to $3,000 of any remaining balance from other income. If a balance still remains, you can carry it over to subsequent years.

You can enter your bad debt under "Other Deductions and Credits" "Nonbusiness Bad Debt."

You can also get there as follows:

1. Click on the search icon in the upper right corner of your TurboTax screen
2. Type "nonbusiness bad debt" in the search bar
3. Click on the link "Jump to nonbusiness bad debt"
4. Your screen will say, "Did a personal debt somebody owed you become collectible in 2024?"
5. Select "Yes"
6. The next screen will say "Claiming a Loss on a debt"
7. Select "I loaned money to someone" and the other boxes that apply and  "Continue"
8. Your next screen will say, "Your loan qualifies"
9. Enter your information regarding your bad debt and continue through your TurboTax screens
10. Answer any follow-up questions

Your screens will look something like this:

Click here for  How to Report Non-Business Bad Debt on a Tax Return

Click here for Topic no. 453, Bad debt deduction