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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29932
Experience:  Taxes, Immigration, Labor Relations
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Where on my 1040 do I deduct money paid on a business loan

Customer Question

where on my 1040 do I deduct money paid on a business loan that I personally guaranteed and paid from personal funds. the company no longer exists and i paid the lender back $200,000
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

When you paid such loan - you actually paid FOR the company - and generally the company woudl reimburse you.
However - because the company no longer exists - you may not expect reimbursements - and that amount is classified as bad debt - if someone owes you money that you cannot collect, you may have a bad debt.

There are two kinds of bad debts – business and nonbusiness.

Generally, a business bad debt is one that comes from operating your trade or business. You can deduct it on your business income tax return. All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible.

A debt becomes worthless when the surrounding facts and circumstances indicate there is no reasonable expectation of payment.

Report a nonbusiness bad debt 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.

Let me know if you need further help with reporting.