Ellen loans Nicole $45,000 to start a hair salon. Unfortunately, the business fails in 2015 and she is unable to pay back Ellen. In 2015, Ellen also had $20,000 of income from her part-time job and $15,000 of capital gain from the sale of stock. How much of the $45,000 bad debt can Ellen claim as a capital loss in 2015?

Question

Ellen loans Nicole $45,000 to start a hair salon. Unfortunately, the business fails in 2015 and she is unable to pay back Ellen. In 2015, Ellen also had $20,000 of income from her part-time job and $15,000 of capital gain from the sale of stock. How much of the $45,000 bad debt can Ellen claim as a capital loss in 2015? ​

Quizplus · Accepted Answer

Ellen can claim a capital loss on the bad debt of $45,000 - $0 = $45,000. However, capital losses can only be offset against capital gains, and any excess loss can be carried forward to future years. In this case, Ellen has $15,000 of capital gains, so she can deduct $15,000 of the capital loss from the bad debt. The remaining loss of $45,000 - $15,000 = $30,000 can be carried forward to future years. Therefore, the amount of the capital loss Ellen can claim in 2015 is $15,000, and the amount carried forward to 2016 is $30,000. The only option that reflects this is B.

Ellen Loans Nicole $45,000 to Start a Hair Salon