The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: Collateral taken||Date: 9/2/2011 4:40 PM|
|Author: JAFO31||Number: 113894 of 124587|
ncredbear: <<<With the economic climate, I placed $20,000 in a CD that I pledged as collateral for a bank loan for my brother and his partner's business. This was 3 years ago. The businees continued to suffer and they were unable to keep up the loan payments. 2 months ago the bank took about $15,000 of the CD to cover the loan. Can I show this as a loss on my taxes? If so what is the proper way to do so? This assumes my brother and partner do not repay me any of the money, which I doubt will happen anytime in the next several years, if at all.>>>
ptheland: "Sounds like a non-business bad debt. On your tax return, it is reported as a short-term capital loss. There's an additional statement you need to attach to your tax return when claiming a non-business bad debt. Publication 550 has the details on that statement. http://www.irs.gov/publications/p550/index.html "
Peter - our link confused me.
First it contains the following text:
"Deductible nonbusiness bad debts. To be deductible, nonbusiness bad debts must be totally worthless. You cannot deduct a partly worthless nonbusiness debt.
Genuine debt required. A debt must be genuine for you to deduct a loss. A debt is genuine if it arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable sum of money.
Loan or gift. For a bad debt, you must show there