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Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I was a 10% investor in a partnership. I had recourse liabilities

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I was a 10% investor in a partnership. I had recourse liabilities for $300K. The partnership was sold in 2011 and I never was paid back my $300,000. Can I deduct that on my tax return?
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.


Hi and welcome to Just Answer!
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.
For a bad debt, you must show that there was an intention at the time of the transaction to make a loan and not for other purposes.

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 in Part 1 on Form 1040, Schedule D. It is subject to the capital loss limitations. A nonbusiness bad debt deduction requires a separate detailed statement attached to your return.
Business bad debts may be deducted in part or in full.
For Business Bad Debt - see IRS publication 535 chapter 10 -

There are two methods to claim a business bad debt.

-- The specific charge-off method.

-- The nonaccrual-experience method.

Generally, you must use the specific charge-off method. However, you may use the nonaccrual-experience method if you meet the requirements

Let me know if you need any help.


OK Thanks.

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