My husband made a business loan and the borrower filed bankruptcy, can we claim any on taxes?

My husband made an individual a business loan in 2002 and the person filed bankruptcy in Feb of 2006. I am in the process of completing our 2006 tax return, can we claim any (or all) of the amount that was still owed to him when the individual filed bankruptcy? The original loan was for just over $7,000 and he still owed my husband over $6,000 and was relieved of the borrower was relieved of the entire debt when he filed bankruptcy so we are out over $6,000. We know we will never see any of that money but can we deduct it on our taxes?

This will be treated as a nonbusiness bad debt. There are pretty stiff rules in claiming a deduction for it (most revolving around the collectability of the debt) which, since the debt was relieved through bankruptcy, you should not have a problem in meeting them.

The bad debt would be treated as a capital loss and claimed on Schedule D. It would be used to offset any other capital gains you had in 2006, and the net capital loss would be deductible to the extent of $3,000 per year. Any undeducted capital loss would be carried over to future years until it is fully deducted.

This is the link to the IRS website for Tax Topic 453 that explains bad debts and how they are deducted.

http://www.irs.gov/taxtopics/t...

For even more detailed information, the tax topic also refers you to Publication 550. Report It

yes you can. It would fall under theft and losses. Should be on Sched. A or itemized deductions. Not sure if there is any restriction or limitations on it, but you can claim everything you lost.

As you can see from some other answers, there is some confusion about how to claim this. It most certainly is something you can use when you file your taxes (assuming you have the correct documents to support the claim), but I would advise going to a tax professional, to get their help in putting it on the right schedule and claiming it correctly.

Using a professional tax service will minimize your chances of being audited over it, plus if you are audited they will be there with you to tell the IRS how your return was prepared. Or, at least the company I work for would do that.

Yes you can deduct if you have the documents to back your claim... Or you can call my cousin Carmen and he'll go collect it for you plus interest (wink,wink) no what I'm saying...............