Discussion:Complicated Bad Debt
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Discussion Forum Index --> Basic Tax Questions --> Complicated Bad Debt
Discussion Forum Index --> Tax Questions --> Complicated Bad Debt
| 17 December 2007 | |
| I have a client who has a day job with a W2 of $120k, he also has a side business. He made a loan of $40k to someone in return for landscaping job for his side business and interest. The borrower made a few payments and did the landscaping but then filed Chapter 7. The client doesn't have enough positive capital gains to write off a personal bad debt as a STCL. What is the best way to handle this? | |
Bottom Line (talk|edits) said: | 17 December 2007 |
| I'm confused. The repayment was supposed to be a landscaping job and interest. Some payments were made and the landscaping job was done. Sounds like the only potential loss is some interest income. | |
| 17 December 2007 | |
| Sounds like you made a loan that was to be repaid with monthly payments including interest with credit being given against payments for landscaping services performed. Let me guess: There was no signed note. I think you have a personal bad debt. Can't remember if the lack of a signed note precludes the deduction or not. Others may weigh in. | |
| 18 December 2007 | |
| Repayment consisted of landscaping (valued at $15k) then principal paydown of $40k plus interest on the $40k amortized and due in 5. Only 2 months of payments were made before default. If the client writes it off as personal bad debt he can only write off $3k since there isn't enough positive capital gain to offset. There were notarized signed notes and the client is also waiting to see if there is funds to be released from the BK trustee. There was actually collateral (3 trucks and a trailer) assigned to the loan but the value of the collateral has gone down and also hasnt been released from the trustee.
Since the loan was made with the purpose to get cheap landscaping, is there any way to write it off as a business expense under his side business (the apartment). | |
| 18 December 2007 | |
| he is a sole proprietor of the apartment so can the loss can carry over to offset the W2 salary of $120k | |
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