Question

Steinar loan a friend 9000 to buy some stock 3 years ago. I the current year the debt became worthless. a. How much is Steinar's deduction for bad debt for this year ? Assume he has no other capital gains or losses) $----- as a -'--- bad debt. b. What can Steinar do with the deduction not used this year? The remaining$---- can carried forward as--- and deducted in future years , subject to ----.

Answer 1

The IRS requires a detailed explanation for a bad-debt deduction. Your return must be accompanied by a statement that includes the following information:

l. The nature of the debt.

2. The name of the debtor and any business or family relationship to you.

3. The date the debt became due.

4. What efforts you made to collect the debt.

5. The reason you determined the debt to be worthless.

*** A restriction kicks in when overall capital losses exceed capital gains. Offset those net losses against as much as $3,000 of salaries and other kinds of ordinary income

* To illustrate, Assume that Steinar in 2017 has no capital gains but suffers a bad debts of $9,000.

First, subtract $3,000 of Steinar capital loss from ordinary income, leaving Steinar with $6,000 to carry forward into 2018, when the remaining loss (unless offset against capital gains) may be used to again reduce ordinary income by $3,000. Steinar unused loss is now down to $3,000. Carry it forward to 2019, when (unless offset against capital gains) it’s finally used up as a subtraction from ordinary income.