For more information on business bad debts, refer to Publication 535, Business Expenses. Additional Informationįor more information on nonbusiness bad debts, refer to Publication 550, Investment Income and Expenses. The statement must contain: a description of the debt, including the amount and the date it became due the name of the debtor, and any business or family relationship between you and the debtor the efforts you made to collect the debt and why you decided the debt was worthless. A deduction for a nonbusiness bad debt requires a separate detailed statement attached to your return. It's subject to the capital loss limitations. Enter your basis in the bad debt in column (e) and enter zero in column (d). The bondholders of Phones 4U Ltd., the BC Partners-backed retailer that went into administration this week, say they intend to take a 'significant write-down' in an effort to make the business viable. Enter the name of the debtor and "bad debt statement attached" in column (a). 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. You don't have to wait until a debt is due to determine that it's worthless. You may take the deduction only in the year the debt becomes worthless. It's not necessary to go to court if you can show that a judgment from the court would be uncollectible. To show that a debt is worthless, you must establish that you've taken reasonable steps to collect the debt. You can't deduct a partially worthless nonbusiness bad debt.Ī debt becomes worthless when the surrounding facts and circumstances indicate there's no reasonable expectation that the debt will be repaid. Nonbusiness bad debts must be totally worthless to be deductible. Nonbusiness Bad Debts - All other bad debts are nonbusiness. For more information on methods of claiming business bad debts, refer to Publication 535, Business Expenses.
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