Question on deductions!

[ladymacguiver]

We had someone we loaned money to file bankruptcy and put that loan on it. Can we deduct any or all of it on our taxes?

I've been told yes and no so am confused about it.

The amount is actually quite large!

(And NO I'm not loaning money to family again!! Lesson learned!!)

[tommy]

We had someone we loaned money to file bankruptcy and put that loan on it. Can we deduct any or all of it on our taxes?



Yes, you write it off as a bad debt. If any of the loan was paid back you must claim the Intrest as income though.

[ladymacguiver]

Thanks BP!!

Since we never received any of it back, that means no income to claim.

I just didn't know if I could deduct the whole thing or not.

[tommy]

Banks and credit card companys write off bad debt all the time, but they are in the millions of bad debt every year, I hope you were'nt in that deep... :harhar: ;)

[ladymacguiver]

:rofl:

No, we just borrowed a few thousand that didn't get repaid!

:harhar:

[Fkatz]

Sorry but Bad debt is no longer allowed as a deduction unless you are considering it as a Casuality or theft, if you take it this way, you must have a Police Report.

There is another way that might be of help, Get a 1099 C ( Cancellation of Debt, If you make this 1099 out whoever you make it out to will have to report it as income and pay all federal tax on it.

Then you will be able to deduct it from your income

Frank

[tommy]

I'll never use you to do my taxes, I have done this many times and no problems...Maybe different states but I doubt it as it if IRS..

[Fkatz]

-BONEPACKER STATED

I'll never use you to do my taxes, I have done this many times and no problems...Maybe different states but I doubt it as it if IRS..


HI BONEPACKER

You might not use me to prepare your taxes but here IS a copy of the article regarding the rules directly from the IRS Web site,
www.irs.gov, enter in the search engine onright hand top of page and type in Bad Debt. I have copied that article for you


This is what it says

Topic 453 - Bad Debt Deduction

If someone owes you money that you cannot collect, you may have a bad debt. For a discussion of what constitutes a valid debt, refer to Publication 550, Investment Income and Expenses, and Publication 535, Business Expense. To deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. If you are a cash basis taxpayer, as most individuals are, you may not take a bad debt deduction for income you expected to receive but did not because the amount was never included in your income. For 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.

There are two kinds of bad debts – business and nonbusiness. A business bad debt, generally, is one that comes from operating your trade or business. A business deducts its bad debts from gross income when figuring its taxable income. Business bad debts may be deducted in part or in full.

All other bad debts are non-business. Non-business bad debts must be totally worthless to be deductible. You cannot deduct a partially worthless non-business bad debt. You must establish that you have taken reasonable steps to collect the debt and the debt is worthless. 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. A debt becomes worthless when the surrounding facts and circumstances indicate there is no longer any chance the amount owed will be paid. You do not have to wait until a debt is due to determine whether it is worthless.

A non-business bad debt is reported as a short–term capital loss in Part 1 on Form 1040, Schedule D (PDF). It would be subject to the capital loss limitations. A non-business bad debt deduction requires a separate detailed statement attached to your return.

In order to claim the bad debt it must be listed on Schedule. D Capital Gains, and must be reported as Short Term Gains. , On Schedule D. line 1 “enter Name of the debtor and “Statement Attached” in Column (a). Enter the amount of the debt in parentheses in Column (f)
For each bad debt attach a statement to your return that contains the following:

1. A description of the debt, including the amount, and the date it became due.
2. The name of debtor and any business or family relationship between you and the debtor
3. The efforts that you have made to collect the debt.
4. And, Why you decided why the debt is worthless

PUBLICATION 17 CHAPTER 14, PAGE 101

YOU ARE TALKING ABOUT A PERSONAL LOAN, NOT A BUSINESS LOAN, OR LOAN FOR INVESTMENT PURPOSES

fRANK

.

[Rev.Vassago]

First, you said:

Sorry but Bad debt is no longer allowed as a deduction unless you are considering it as a Casuality or theft, if you take it this way, you must have a Police Report.

Then, you contradict yourself by posting the IRS guidelines, which state (and pay particular attention to the part in RED):

There are two kinds of bad debts – business and nonbusiness. A business bad debt, generally, is one that comes from operating your trade or business. A business deducts its bad debts from gross income when figuring its taxable income. Business bad debts may be deducted in part or in full.

All other bad debts are non-business. Non-business bad debts must be totally worthless to be deductible. You cannot deduct a partially worthless non-business bad debt. You must establish that you have taken reasonable steps to collect the debt and the debt is worthless. 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. A debt becomes worthless when the surrounding facts and circumstances indicate there is no longer any chance the amount owed will be paid. You do not have to wait until a debt is due to determine whether it is worthless.



If someone declares bankruptcy, the debt becomes worthless, and can be written off as a short-term capital loss.

I have to agree with Bonepacker - I would never use you as a tax preparer, as you have no idea what the rules are.

[PartTimeDweller]

Hey Rev, cut him some slack man. He hasn't finished the H&R BLOCK schooling yet. :rofl:

[Fkatz]

THANKS GUYS,

I REALLY APPRECIATE YOUR NEGIATIVE COMENTS, BUT I REALLY DID NOT KNOW ABOUT THE BAD DEBT DEDUCTION DUE TO NO ONE THAT I HAVE AS A CLEINT HAS EVER CLAIMED FOR IT. i KNEW ABOUT THE BAD DEBT BUSINESS DEDUCTION, BUT NOT THE PERSONAL , THAT IS WHY I STATED THAT IT WAS NOT DEDUCTIBLE, SO I LOOKED IT UP AND FOUND OUT THAT IT CAN BE TAKEN, THAT IS WHY I POSTED IT TO THE RETURN MESSAGE.

I WAS TRAINED BY A CPA IN NEW JERSEY AND IT DID NOT INCLUDE BAD DEBT AT THE TIME, THAT WAS 33 YEARS AGO. NO ONE REALLY KNOWS EVERYTHING ABOUT TAXES WITH THE CONSTANT LAWS CHANGING YEARLY. EVENTUALLY WE FIND OUT THINGS THAT WE NEVER DID BEFORE,

AS FAR AS BLOCK IS CONCERNED, DON'T EVEN MENTION ITS NAME.
I ONLY HAVE AMENDED RETURNS FROM THERE MISTAKES. OVER THE LAST TEN YEARS.

NORTH CAROLINA YOU CANNOT CLAIM BAD DEBT EXCEPT FOR BUSINESS. NO MATTER WHAT. i DON'T KNOW WHERE YOU LIVE AND EVERY STATE IS DIFFERENT

FRANK

[Rev.Vassago]

THANKS GUYS,

I REALLY APPRECIATE YOUR NEGIATIVE COMENTS, BUT I REALLY DID NOT KNOW ABOUT THE BAD DEBT DEDUCTION DUE TO NO ONE THAT I HAVE AS A CLEINT HAS EVER CLAIMED FOR IT. i KNEW ABOUT THE BAD DEBT BUSINESS DEDUCTION, BUT NOT THE PERSONAL ,

So you assumed it wasn't, and stated as much, without any knowledge to back it up? I'm glad you aren't my accountant.

[/quote]THAT IS WHY I STATED THAT IT WAS NOT DEDUCTIBLE, SO I LOOKED IT UP AND FOUND OUT THAT IT CAN BE TAKEN, THAT IS WHY I POSTED IT TO THE RETURN MESSAGE.[/quote]

No, you copied and pasted from the IRS. You never revised your original statement that the debt was not deductible.

[Uturn2001]

NORTH CAROLINA YOU CANNOT CLAIM BAD DEBT EXCEPT FOR BUSINESS. NO MATTER WHAT. i DON'T KNOW WHERE YOU LIVE AND EVERY STATE IS DIFFERENT

I assume that you mean as far as state taxes are concerned, not federal.

[tommy]

I WAS TRAINED BY A CPA IN NEW JERSEY


This explains alot !!! :rofl: :rofl: :rofl:


As an Accountant, before you soot off your mouth of wisdom, make sure you know what your talkin about..Yes, laws do change and as people PAY you to do taxes YOU should be up on the new Laws. NO EXCUSE!!



LadyMac CAN claim this as a bad debt and use it as a write off...






Frank, I know it is almost impossable to know every nook & crany in the system, but it is your job fella.. Do it right, work for the people not the IRS and you would have a much better earning capacity..

[Fkatz]

[b] Hey Guys and Gals,

I admit I dont know all, no matter how much experience an Accountant, Tax preparer or EA has, no one knows everything due to all the law changes that are a constant problem, We try to keep up with it, but situations come up and we do miss some of them, So I do try and correct and research it. which I did, and found out that it is deductible, but it must be proven with attachments added to the return. The attachments cannot go electronically, so the return would have to be mailed. In this case you have to obtain a copy of the bankrupty to claim it as a worthless debt, you can find it on the web, but I do not know where, try the US Bankrupty Court, in the State where you live, it is public record.

From my 33 years experience with other Accountants, CPA's and EA and in meeting with many they addmitted that they do not know everything either, and I can tell you from that experience,
I have amended returns done by CPA's where they did not give Drivers the full percentage of the Per Diem, the Correct Depreciation in Years for there trucks, and a other deductions that they would not allow as a deduction, they said that they were not deductible. and the reason was they did not know the transportation industry. The Transportation is one that is specialized, of which I am proficent in, What you are questioning is the other parts of the returns,

I am not a Financial Planner, Stock Broker, or a CPA,, which I admit, but I am an Accountant, Bookkeeper, and Accredited Tax Preparer, and belong to the NATIONAL ASSOCIATION OF TAX PROFESSIONALS, (NATP)
NATIONAL SOCIETY OF ACCOUNTANTS, (NSA). ACCREDITION COUNCIL OF ACCOUNTANCY AND TAXATION, (ACAT), and the ASSOICATION OF INDEPENDENT PROFESSIONAL BOOKKEEPERS, (AIPB)

if you feel that I don't know anything that is your business. I try my best to give you information, If I feel I dont know about it at least I admit it. it might be after the fact, but it is corrected, whcih at least I take the time research it and post the correct information from the IRS web site.
True it is copied and pasted, but should that matter. I don't think so. at least the correct ruling is not heresay. it is the correct in the way the law states.

As far as the States are concerned, it would depend on what State you live in to find out if the Non-Business Debt is deductible or not.


This is to Bonepacker alone
What does New Jersey have to do with it.
Any other questions

Frank

[tommy]

This is to Bonepacker alone
What does New Jersey have to do with it.

Anything from Jersy just aint right, do you lead a sheltered life or what?? :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl:

[tommy]

Just to onform here that Lady Mac DID get to deduct a good portion of this as a write off...I would of gotten it all off but most of it is better than NONE like someone here mentioned :yikes:

good for LM ! :D :D

[ladymacguiver]

Yeah, now if I can just get my other "business" going!!


:angry:


I'm in a mood to kick someone, any volunteers?

:rofl: