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I have a question about loans and how they apply to taxes.

Hello there,I have a question...
Hello there,I have a question about loans and how they apply to taxes.Let's say a bank loans a person $5,000.What happens if the person does not pay back the full amount on that loan and the bank has exhausted all possibilities of collecting from the person.Let's say the person owes $4600 and the bank cannot recover that.When it comes to tax time, can the bank take this as a "$4600" capital loss so they literally pay $4600 less on taxes or would they only be able to offset their losses by $4600 multiplied by which-ever there tax bracket is?I ask this because I may consider doing private money lending, and I want to know the risks involved of failed repayment and how this affects profitability of a person's income.Thanks, Justin
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3/23/2018
Terry L.
Terry L., Attorney
Category: Bankruptcy Law
Satisfied Customers: 2,960
Experience: Better Business Bureau. 18yrs bankruptcy experience. Chicago Bar Assoc. American Bankruptcy Institute member.
Verified

Good morning. Yes, you can write off business bad debts on your tax return. Refer to IRS Publication https://www.irs.gov/taxtopics/tc453

Also, this is a good summary of business bad debts, and how to write them off. https://www.irs.gov/publications/p535#idm140608693294512

Topics - This chapter discusses:

This is very informative on how you calculate your income, cash or accrual, and then how you treat the bad debt.

Review this publication and let me know if you have any questions. THanks

  • Definition of business bad debt

  • When a debt becomes worthless

  • How to claim a business bad debt

  • Recovery of a bad debt

Terry L.
Terry L., Attorney
Category: Bankruptcy Law
Satisfied Customers: 2,960
Experience: Better Business Bureau. 18yrs bankruptcy experience. Chicago Bar Assoc. American Bankruptcy Institute member.
Verified
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The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).

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