Client Resource Center

Practical answers for your questions

1450 Frazee Road, Suite 714 • San Diego, CA 92108
Phone: (619) 297-1040

What to do with a loan to you that has gone bad?

Question: I made a loan to a relative that will never be repaid.  Can I take a deduction for this bad debt on my tax return?

Answer: Your loss might qualify as a nonbusiness (personal) bad debt deduction.

You can take a tax deduction for a nonbusiness bad debt only in the year it becomes worthless and only as a short-term capital loss. In addition, you must be able to prove that a bona fide debt existed and that you've made efforts to collect the debt.