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Can I Write Off A Personal Bad Debt?

Personal bad debts which have become un-collectible are generally deducted as a short term capital loss (on Schedule D) in the year it becomes un-collectible.

Be aware that you may need to be able to prove that a legitimate DEBT was incurred to begin with. If the loan was made to a boyfriend/girlfriend, spouse, other relative or friend, the assumption will usually be that this was a gift which you really did not expect to receive back. This can only be disproved by clear evidence, such as a promissory note stating a definite repayment period.

You will also need to be able to establish what occurred to make the debt un-collectible. For example, if the debtor had your debt discharged under bankruptcy, or if the debtor skipped town and you cannot contact them, or if default occurred and collection costs would exceed what you are likely to recover. Generally, you will need to be able to prove that any *reasonable* collection efforts were made. You cannot simply "choose" to forgive the debt and write it off.

See the Schedule D instructions for the format of the statement to be attached if you are deducting a personal bad debt.




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We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Copyright 2017 Wink Tax Services / Wink Inc.
Last modified: January 30, 2017