sjohnson[at]levo.com wrote:

- quote -

Did you ever receive any payments on the loan? If not, your
non-business bad debt is limited to the principal amount
loaned.

- quote -

It is not a deduction, per se, as you do not make the claim
on your Schedule A. Instead, you claim a SHORT TERM capital
loss on Schedule D. Use December 31,2005 as the Sale Date,
$10,000 as the Cost Basis, and -0- as the Sale Price.

The capital loss will offset some (or all) of your capital
gains. If it is more than that, then up to $3,000 will
offset ordinary income. If, after all that, there is still a
capital loss remaining, you can carry it forward to the next
year(s) until it is used up.

If interest was accruing on the loan, that is not deductible, since you
never received and reported the income.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

I'm getting ready to prepare my tax return for 2005, and I
have a question.

I have income from my job, plus some long-term capital gains
from a stock sale. About 5 years ago, I loaned $10,000 to a
private party who ended up filing for bankruptcy at the end
of last year. Since this makes it a bad debt situation, I
have two questions: 1) What is the maximum allowable bad
debt deduction under current tax law, and 2) is there a
particular way I should approach this in preparing my return
that would maximize the deduction amount?

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >