Originally Posted by carsonheim
Hi Tax Gurus,
When building a house, I had to fire and subsequently sue a contractor for nonperformance after providing them with a substantial amount of money. I was awarded the money that I paid (almost 25K) but have not been able to collect after numerous attempts. sigh....
Am I able to write this off somehow on my Federal Taxes? Theft? Anything?
Thanks for any insight you can provide.
you can deduct it as non business bad debt on Sch D of 1040; Since is is a short term capital loss you can offset this against other capital gains .nonbusiness debts arise from your nonbusiness activities such as making personal investments or personal activities. Nonbusiness bad debts can be deducted as short-term capital losses, provided you meet certain strict requirements. 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 losses 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 losses exceed the long-term gains, the excess short-term loss is deductible against up to $3K of your other income. Any amount remaining can be carried forward and deducted in future. On Sch D, Part 1, line 1 you enter the name of the contractor and "see statement attached" in column (a). Enter the amount of the bad debt ($25K) in parentheses in column (f). The statement should contain: A description of the bad debt; The name of the debtor; The efforts you made to collect the debt, and ; Why you decided the debt was worthless. For example what you said in the question," i were awarded the money that I paid (almost 25K) but have not been able to collect after numerous attempts.”