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All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible. You cannot deduct a partially worthless nonbusiness bad debt.

What is a partially worthless bad debt, and does it affect me at all? Since there were some payments made, does that make this only partially worthless since it is only the balance that is unpaid? This is confusing me.

My condolences on your loss. A partially worthless bad debt is one where you still may be able to collect something. For instance, if your FIL's estate were large enough to pay off Medicare, but not fully pay you back, you would have a partially worthless bad debt. "Partially" doesn't refer to the amount of initial indebtedness, but the amount of debt at a specific point in time. In your case, whatever part of the loan is currently outstanding is totally worthless as you have no chance of recovering any part of what's owed you.

If, for example, you expected to receive $1000 against the outstanding debt, you would not be able to write off the bad debt until after you recevied the $1000. At that point, the remaining balance would be totally worthless.

I hope this helps explain things.

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