Nonbusiness bad debt

[KJ Judd]

Client put up $1,000 bond money for son who didn't show up in court so client lost the $1,000 bond money. Son has never worked & is now in jail. Client wants to know if he can claim nonbusiness bad debt for this amount as he will never be able to collect.

I find nonbusiness bad debt is deductible as short term capital loss in year debt becomes entirely worthless. I can't find anything about related parties. I'm not sure if this would be considered a gift to son. Thoughts?

[Gretel]

I say it's a gift to son.

To have a non-business bad debt you need to have an enforcable contract and make collection efforts.

[OldJack]

I agree with Gabriele... this is not a bad debt but just a personal loss not deductible.

[Brian EA]

Client put up $1,000 bond money for son who didn't show up in court so client lost the $1,000 bond money. Son has never worked & is now in jail. Client wants to know if he can claim nonbusiness bad debt for this amount as he will never be able to collect.

I find nonbusiness bad debt is deductible as short term capital loss in year debt becomes entirely worthless. I can't find anything about related parties. I'm not sure if this would be considered a gift to son. Thoughts?

From Gabriele to Old Jack; You are out of luck Pal

[KJ Judd]

I was thinking it wasn't deductible. However I do feel for this guy. He now has the son's three kids & son's girlfriend living with him.

[Chief]

Nonbusiness, Personal Loss

LOL Children can be the joy or our lives and can be our biggest heartache. My mother use to say children step on your toes when they are young; then step on your heart when they are older. That's life. (Gabriel, why don 't you say that in Latin)

[Bird Legs]

Children

Back in my younger days I got into a semi bad situation and went to Mother for help.
Mom said "son, you got yourself into this mess, and now you get yourself out of it".
Someway I did manage to get myself out of it.
Thanks to Mom.

[oceanlovin'ea]

Sign contract

He should have had his son sign a note agreeing to pay him back the money if he didn't show up for his hearing. Then if he didn't pay, he would have proof that it was a bad debt.

It would establish that the father did not intend to "give" his son the money, that he expected to be repaid.

Linda F

[oceanlovin'ea]

No comment?

I thought sure my last comment would get somebody riled up. Guess it's too late for debating the issue.

Linda F

[Jiggers]

Family bad debt

One other stipulation to be able to write it off, even for family members, is that you have to take legal action against them trying to collect.

That means that you have to go to court and attempt to collect. Most parents don't want to do that.

I saw an interesting article in the paper today: Are you afraid of your parents? In my youth I was afraid of doing something because it was wrong and it would offend my parents. They never laid a hand on me, but if looks and talks could kill, I would be dead!

Now, parents are afraid of their kids! Why? My sister-in-law's youngest daughter had a child 3 years ago, not married, and had no intention on getting married. My wife & I told her to make the daughter raise the child, get a job, get an apartment, etc. and find out how tough it was to raise a child. Oh no, you don't know what you are talking about! sister-in-law is raising that grandchild, changing diapers, feeds, supports, you know, all the stuff, while letting this useless daughter run around still. Found out she is pregnant again! Stupid kids haven't found out what causes it yet!

Sorry, just venting!

[oceanlovin'ea]

Court

I didn't know you had to take it as far as court to be able to write off a bad debt. Years ago, I had a client who had loaned money to someone and had a signed agreement. The man paid him for a while. Then he moved and quit making payments. My client tried unsuccessfully to get the man to finish paying him off. So we wrote it off one year as a non business bad debt.
He didn't want to take this person to court, but he also had lost several thousand dollars in the deal.
Interesting things you learn on this board.

Linda F

[Jiggers]

Collection efforts

See IRS Pub 17, page 99 for information required to report and the genuiness of the debt. It says you have to report "...the efforts you made to collect the debt".

I say to file something with the courts, even the small claims court, shows you made an attempt to collect the debt.

You don't have to take it any further if there is no hope of collecting.

I tell my clients about filing with the courts because most want to write-off loans to their kids. They won't listen to it being a gift.

[Unregistered]

Legal action is not always needed, it's facts and circumstances. However, actions to collect should be the same as if the debtor was an unrelated party that is not a friend. A statement detailing the facts and circumstances is supposed to be attached top the return. Since the son "has never worked" this situation screams gift loan. Even if there had been a written note.

[Gretel]

LOL Children can be the joy or our lives and can be our biggest heartache. My mother use to say children step on your toes when they are young; then step on your heart when they are older. That's life. (Gabriel, why don 't you say that in Latin)

Chief, I don't know any Latin. Can say it in German though:

Solange Kinder klein sind treten sie dir auf die Fuesse, wenn sie gross sind treten sie dir auf's Herz.