How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Lev Your Own Question

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 23172
Experience:  Taxes, Immigration, Labor Relations
870116
Type Your Tax Question Here...
Lev is online now
A new question is answered every 9 seconds

we sold our home on a contract for deed. The buyer defaulted

Resolved Question:

we sold our home on a contract for deed. The buyer defaulted and we had a total of $10,000 of debt that we had to pay to get the house ba in shape, utilities, taxes etc. We went to small claims court and got a judgement in our favor. We cn not get them to pay for a year. Can i deduct this bad debt on my income taxes
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

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.

Lev :

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.

Expert:  Lev replied 1 year ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and posting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

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.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 23172
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you
Customer: replied 1 year ago.

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

Expert:  Lev replied 1 year ago.
Because that deduction is reported as a capital loss - the loss may be fully used to offset other capital gains.
However if you do not have other capital gains or your net capital loss is more than $3000 - only $3000 may be used to offset other taxable income.
The rest will be carried over to following years until fully used.

Please also be aware that to deduct a bad debt, you must have previously included the amount in your income or loaned out your cash.
In your explanation note - you need specifically mention that amount owned to you was previously included the amount in your income or you loaned out your cash.

Let me know if you need any help.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 23172
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you
Customer: replied 1 year ago.

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.

Expert:  Lev replied 1 year ago.
Generally - I do not see any issues.
Still - you need to be very careful with such deduction - and clear itemize the total amount of worthless nonbusiness bad debt.
For instance - if you actually paid real estate taxes - and that payment was for the buyer - and did not deduct these payments on your tax return - then you may consider that payments were for the buyer - as if you were loaned out your cash - and that amount may be deducted a bad debt.
Similar for the travel costs and other legal expenses - that amount was your out of pocket expenses - and because the court rules that the buyer is responsible for these expenses - that amount as well may be deducted a bad debt.
However, be sure that none of these expenses were previously deducted on your tax returns. If for instance you deducted real estate taxes - that amount must be excluded from bad debt deduction.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 23172
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
 
 
 
Chat Now With A Tax Professional
Lev
Lev
Retired
19292 Satisfied Customers
Taxes, Immigration, Labor Relations