Non-Business Bad Debt Requirements for Deductions and Limitations!
A non-business bad debt is reported on Form 1040, Schedule D, Capital Gains and Losses, as a short-term capital loss. (NOT SCHEDULE A)
It is subject to the capital loss limit of $3,000 per year. This limit is $1,500 if you are married filing a separate return. A non-business bad debt requires a separate detailed statement attached to the schedule D.
The following are expressly required to be included in the statement as follows:
1. Your relationship to the debtor
2. Name and address of the debtor
3. The amount and date of the original loans made
4. Efforts made to collect this loan
5 .What basis has a determination been made to consider it to be worthless
For more information on non-business bad debts, refer to Publication 550.