Have a Tax Question? Ask a Tax Expert
Hi and welcome to our site!Sorry for your situation. If someone owes you money that you cannot collect, you may have a bad debt. To deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. There are two kinds of bad debts – business and nonbusiness.
Nonbusiness bad debts must be totally worthless to be deductible. You cannot deduct a partially worthless nonbusiness bad debt.
A debt becomes worthless when the surrounding facts and circumstances indicate there is no reasonable expectation of payment. To show that a debt is worthless, you must establish that you have taken reasonable steps to collect the debt. It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless.
A nonbusiness bad debt is reported as a short-term capital loss on Form 8949 , Sales and Other Dispositions of Capital Assets, Part 1, line 1. Enter the name of the debtor and “bad debt statement attached” in column (a). Enter your basis in the bad debt in column (e) and enter zero in column (d). A nonbusiness bad debt deduction requires a separate detailed statement attached to your return.
I did what you said and filled out the form. Also attatching wxplanation pafe and copy of small claims court ruling. The people who bought the house are not able to work due to health major problems. Have that documented too.
My question isnow....it says on line 21 of schedule D we can only deduct $3000 for our tax year 2012. Is this correct and if so what happens to other $7000 loss/ Thanks
he money owed to us included unpaid real estate taxes they did not pay, utility bills, clean up of property they left in shambles, We have receipts for all this and was verified in court documents plus travel costs to take them to court and court fees we paid. Will this suffice>
Thanks for the advice on carry overs. Tees me off people that are rich can write of big amounts and we can only do $3000. No need to answer that. We are not rich and do not or ever have had capitol gains.