____ Since nonbusiness bad debts must be treated as short-term capital losses, your deductible loss is limited to the extent of capital gains plus $3,000 (or $1,500 if married filing a separate return).
____ Loans which you made and later forgave were not deducted as bad debts, because they are considered to be gifts.
____ If you use the cash method of accounting (reporting income only when received) and had not included uncollectible interest, rents, fees, salaries and wages in income, you did not deduct them as bad debts.
____ You can show that all reasonable steps were taken to collect the debt.
____ You can establish that the amount shown was a bad debt arising from a true debtor-creditor relationship based upon a valid and legally enforceable obligation.
____ You did not deduct a nonbusiness bad debt that was partially worthless, in the current year.
____ Business debts which became partially or totally worthless were deducted only to the extent that they became worthless during the current tax year..
____ You can show there was a valid enforceable obligation to pay a fixed or determinable sum of money.
____ You can show that the debt became worthless during the tax year that it is reported.
© 1986, 1998 to 2002, Jack Warren Wade, Jr.
