Personal Investment loss

[taxgirl]

I have a client who lost approx. $16,000 when a plan to build went south. I don't have all the details but know the build was for a personal residence and included fees to architects and builders. I can't find anything other than investment losses and wondered if anyone knew of something to help them out...

[Burke]

Did the builder go out of business or file for bankruptcy?

[taxgirl]

I emailed my client for more info regarding the situation but would that make a difference?

[taxgirl]

Client verified that builder did not go bankrupt

[Burke]

Usually someone does not pay $16,000 without some sort of contract in place. What exactly happened?

[taxgirl]

He really hasn't said although I've given him a couple opportunities. Based on it being a personal loss, I haven't questioned too much as he isn't offering. Maybe he's embarrassed???

[taxmom34]

couldn't this be considered a non-business bad debt? and after pursuing legal avenues still has not collected, could be claimed as a loss on schedule D? I haven't done a nonbusiness bad debt in 35 years but isn't it still available.

[taxea]

It might also be considered theft of services once the facts are known.

[Burke]

If he won't provide you with details or documents on the "loss," ignore it and do not put on the return until you have all the facts.

[taxgirl]

Finally got the whole story and it boils down to...

Client paid builder monthly payments to build up "down payment." Builder had drawings made and legal fees for contract. Contract had a specified amount but builder kept increasing the numbers to build. Taxpayer had to abort based on the increasing amount to build and builder returned $ except what he had in it (architect fees/legal fees). Taxpayer then goes to another builder and drops $5K to have them analyze how much it would cost. Builder 2 had to basically re-do house plans and the net of these 2 bad decisions was approx. $16,000.

I don't think there is anything to help him in this situation??

[Burke]

Doesn't sound like it. TP cancelled the first contract and was refunded $$ less the costs builder incurred. I assume second builder is still in the running? Anyway, it is just part of his basis in the new construction. It cannot be called a "loss" at this point. Sounds like he got what he paid for.

[taxgirl]

He didn't contract with the second builder either because the quote came back too high