Welcome Guest. Register Now!  


For 2013 Tax Tips For Year 2013.


Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 01-01-2014, 10:43 AM
Junior Member
 
Join Date: Sep 2013
Location: Ohio
Posts: 4
Distribution of a Bad Personal Loan

A friend borrowed quite a lot of money from me over a period of months to get through a period of unemployment and I have since found him to be a deadbeat. (To say it mildly)

I understand that I can deduct up to $3,000.00 from my gross income for this bad loan. But, if the loss is considerably more than that, is there a way to distribute the loss over multiple tax years?



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 01-01-2014, 01:48 PM
Moderator
 
Join Date: Oct 2010
Posts: 4,620
Quote:
Originally Posted by Robb51 View Post
I understand that I can deduct up to $3,000.00 from my gross income for this bad loan. But, if the loss is considerably more than that, is there a way to distribute the loss over multiple tax years?

yes. If you loan money to someone in a true debtor-creditor relationship that is unrelated to your trade or business, the loan is a nonbusiness debt. They are subject to the capital loss limitation, which means you cannot deduct more than $3K per year. Anything in excess of that amount is carried forward to future years until it is used up.According to IRS Publication 550, for each bad debt consumers need to attach a statement to the return that includes: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. For example, you could show that the borrower has declared bankruptcy, or that legal action to collect would probably not result in payment of any part of the debt. A partially worthless debt is not deductible.In general, as said abvoeyou can take the deduction by claiming a STCL on Sch D of your Form 1040 tax return; for tax purposes, you have a bad debt when you're owed money and you can't collect it..All other bad debts, except biz bad debts, are nonbusiness bad debts, like the money you lend to your friend. In certain situations, you can take a tax deduction when the debt isn't repaid. your bad is deductible only if it qualifies as a nonbusiness bad debt. That's because you're not in the money-lending business, and the loan isn't connected to your business. To deduct your nonbusiness bad debt, you have to show that:The debt is bona fide there has to be a debtor-creditor relationship, and (there has to be a valid and enforceable obligation for repayment);You have a basis in the debt ;The debt became totally worthless in the year you claim the deduction. You can take the deduction only in the year in which the debt becomes totally worthless. For example, if your buddy didn't repay a loan in 2013 as promised and it becomes worthless in that year because he filed bankruptcy, then you must claim the deduction on your 2013 return.even if you didn't take a deduction in the year it became worthless, you may be able to file a claim for a credit or refund due to the bad debt. You have to file an amended return for the year the debt became worthless. You have to file the amendment within seven years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #3 (permalink)  
Old 01-01-2014, 10:20 PM
Junior Member
 
Join Date: Sep 2013
Location: Ohio
Posts: 4
Thank you for your help. Now I know how to proceed.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
What happens to interest deduction on personal residence home equity loan proceeds which are used to buy a new personal residence? taxpros For 2013 1 04-06-2013 10:32 AM
Personal loan questions windowphramer Miscellaneous 2 05-17-2011 01:55 PM
reporting about personal loan interest zvikorn Itemized Deductions 1 02-05-2011 10:44 PM
Personal return:No distribution, only payroll Waterstone S-Corporation 5 05-10-2009 10:12 PM
Can I deduct a losses from a personal loan?? aron Capital Gains 1 02-25-2007 11:47 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning