Client Resource Center

Practical answers for your questions

4775 LINGLESTOWN RD STE 100 • HARRISBURG, PA 17112
Phone: 717-657-1300 • Fax: 717-657-0987

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.