Can I deduct the loss as a non business bad debt on my return

Question

I borrowed money to a relative and we completed a promissory note with an interest rate.  He paid back a minor amount of interest, but no principal. The loan was made several years ago and now I consider the loan uncollectable. No interest payments have been made for about 3 years. He lost his business, did not file bankruptcy. Can I deduct this loan on my tax return as a non business bad debt? I have some long term capital gain to offset this loss against, and then the rest at 3,000/yr.

Thank you.

JMSSGV · Accepted Answer

Information from the IRS:

https://www.irs.gov/taxtopics/tc453

MatthewD · Accepted Answer

Hi Clair,

The link JM provided has all the information you need. For ease, let me just say this.  If you feel the loan is non collectible (totally worthless) report it as a short-term capital loss on the Stocks or Investments Sold page. You will be limited to a $3,000 loss each year unless you have other capital gains.