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Gerri A Harrison CFP EA
Gerri A Harrison CFP EA, Enrolled Agent
Category: Tax
Satisfied Customers: 252
Experience:  27 years of preparing income tax returns - both personal and small business
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Two years ago, a friend borrowed $4500. We made a written

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Two years ago, a "friend" borrowed $4500. We made a written IOU for the monies. Needless to say, I have not received a dime and the "friend" has jumped out of state. I recall there used to be a way to deduct monies owed to you on your federal taxes.
Does this deduction still remain??? Do I have to get a "formal" court order or does the written IOU suffice for proof??
Submitted: 6 years ago.
Category: Tax
Expert:  Gerri A Harrison CFP EA replied 6 years ago.

You can write off the loan as a bad debt on Sch D of your income taxes if you have the documentation showing that it was a true loan. That means that your IOU must show the amount borrowed, an interest rate, and the anticipated repayment schedule (ie what the monthly payment should be). You also need to have documentation that attempted to collect the debt and were unsuccessful - normally in the form of certified letters.

 

If the loan documents are in good order but you do not have the certified letters, you can do that now. Show a pattern of trying to collect for at least 6 months and then you could write it off as a bad debt.

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