Deducting Bad Debt at a Glance
To deduct a bad debt, you must show that:
- there was an intention at the time of the transaction to make a loan and not a gift; AND
- you have no reasonable expectation that the nonbusiness bad debt will be repaid.
Publication 17, Your Federal Income Tax - Chapter 14, Sale of Property - Under Capital Gains and Losses, see Nonbusiness Bad Debts for essential guidance
Publication 550, Investment Income and Expenses - Chapter 4, Sales and Trades of Investment Property - Under Capital Gains and Losses, see Nonbusiness Bad Debts for detailed guidance
Publication 535, Business Expenses - Chapter 10, Business Bad Debts - Detailed guidance