Can I deduct my small claim court judgment of $10,000 from a loan that it can't be collected from debtor?

[Dragonfly]

I won the court case but the debtor hasn't paid anything of the $10,000. I have made expenses with lawyer and investigator for collecting my money:  bank levy, wage garnishment, or a real estate lien. Nothing. He is hiding. 

I would like to know if I can deduct that money that I lend him for his business and it has been not paid. Or the expenses for the lawyer and investigator. 

The court sentence is dated January 17, 2018.

[Hal_Al · Accepted solution]

You have a bad debt. A bad debt is deducted as a short term capital loss. In TurboTax (TT), type> bad debt, non-business <in the find box, then click on "jump to". That will take you to the entry point.

Lawyer fees and other expenses are no longer deductible, under the new tax law. Even under the old law, they were only deductible as a Misc. itemized deduction subject to the 2% of AGI threshold.

One requirement to write off a bad debt, is that it be noncollectable. It appears that  you meet that criteria.  If you later do collect it, you will have to report the money as income.

[jj152]

Same Issue here.

Says online I can file debt forgiveness 1099c as creditor and take as income loss - but Turbotax only allows me to file as debtor?  Also, the advice says you can just claim as loss, but doesn't actually allow you to?  The 'search' he recommends doesn't give anything helpful?

May have to hire tax person and not use turbotax this year?

[DaveF1006]

To clarify, is this a business bad debt or a default on a personal loan?

[Opus 17]

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@jj152 wrote:

Same Issue here.

Says online I can file debt forgiveness 1099c as creditor and take as income loss - but Turbotax only allows me to file as debtor?  Also, the advice says you can just claim as loss, but doesn't actually allow you to?  The 'search' he recommends doesn't give anything helpful?

May have to hire tax person and not use turbotax this year?

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You need to explain a lot more details.

If you are in business, and someone doesn't pay you, then generally you don't have any tax deduction.  You simply report less income, which results in paying less tax.  You might issue a 1099-C, depending on the facts and the type of business you are in.  

If you as a private person, pay someone from your already-taxed funds, and they don't deliver, you may have a non-business bad debt.  For example, you pay a contractor a deposit on a remodeling job and they skip town or go bankrupt.  There are a number of rules you must follow before you can take a tax deduction for a non-business bad debt.  And if you are not in business, you generally don't issue a 1099-C to the person who owes you money.