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From: San Diego, CA Hi TaxMama, How do I claim loans I made to a friend that they never paid back to me, and now i cannot collect on? The sum is over $2500? Jeanne Dear Jeanne, That's a real shame. Are you still friends? Before IRS will accept a bad debt, they need to see that you've made a good-faith attempt to collect it - otherwise, they would regard it as a gift. So, have you written to them, requesting the pay back? (With a copy for your files) Have you filed in small claims court to collect it? Has your friend filed bankruptcy? (Do you have a copy of the letter from the court?) Are they insolvent? (And are they willing to put that in writing?) If you have a record of having made an honest effort to collect it, use Schedule D, showing the date you made the loan as the purchase date. Use the $2,500 as the cost. Put -0- in the sales price. This will result in a loss of $2,500. Most likely, a transaction that small will not attract audit. But if you are audited, you will need to have written proof, both of the loan and the fact that you cannot collect it. I do hope this helps. Eva Rosenberg TaxMama Click Here for TaxMama's Honor System |
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