Block on Trump's Asylum Ban Upheld by Supreme Court
Consider this scenario: You lent $10,000 to your cousin Arty but when time comes to pay back that loan, Arty says "No! It was a gift!"
Your conflict with a deadbeat cousin aside, what does the Internal Revenue Service have to say about your non-business bad debt?
For starters, let's look at how the IRS treats non-business bad debts. Bad personal debts are treated as short term capital losses. This means that you can deduct them from your income tax calculation, but only up to a maximum of $3,000 above your capital gains for the year.
What is a non-business bad debt and when would it apply to the average taxpayer? In Publication 550, the IRS describes a non-business bad debt as a bad debt (i.e. an uncollectible debt) that has no relation to the lender's business. In order for the debt to be deductible, it must be "totally worthless" and must be a genuine debt.
Both of those criteria come back to the question as to whether the amount was a gift or a loan. So, how do you establish that? And if it was a loan, how do you show it is uncollectible.
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.
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