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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15309
Experience:  15years with H & R Block. Divisional leader, Instructor
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I invested $10,000 with a capital investment company that bought

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I invested $10,000 with a capital investment company that bought and sold foreclose houses. I was told that I would receive 12% APR to be paid when I requested my investment back. That amount accrued to $20,882.47 by 6/15/2011.

I was told in December of 2011 that the company would not be able to repay the investment. How can I deduct this on my 2011 tax return?

Robin D :

Hello and thank you for using Just Answer,
When you say you invested in the company, did you purchase a share of the company or was this a loan as venture capital?

Robin D :

If a loan under venture capital that would be deductible under Bad Debts. If the loan was business related, it is a fully deductible business loss.

Robin D :

If you received a share of the company then you would report the losses that are passed to you directly from the business itself. Generally this would be reported on your K1 that the business would issue to you.

Customer:

It was an investment for them to use as capital. I was to receive 12% APR on the money when I requested repayment. I never received any money nor asked. I did not receive any interest in the company, only a loan to be used in their business.

Robin D :

Thank you for responding. Then this is a bad debt.

Robin D :

Generally, a business bad debt is one that comes from operating your trade or business.


The following are examples of business bad debts (if previously included in income):



  • Loans to clients and suppliers

  • Credit sales to customers, or

  • Business loan guarantees

Robin D :

All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible. You cannot deduct a partially worthless nonbusiness bad debt.

Robin D :

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). Use a separate line for each bad debt. It is subject to the capital loss limitations. A nonbusiness bad debt deduction requires a separate detailed statement attached to your return.

Robin D :

You will deduct the amount you gave them not the interest you were to receive.

Robin D :

It is only your basis in the debt (the actual amount you gave them) that is deductible.

Robin D :

I trust the above addresses your question but please advise if you need more info or clarification.

Robin D :

Your positive rating is always thanks enough.

Robin D :

Did you need to ask me something else about this?

Customer: replied 4 years ago.


What is a "Bad Debt Statemen"?

Hi,
That is merely a statement you type and include with the return. There is no set form it is only to explain the circumstances of the debt and why you are claiming it.
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