Three years ago, James loaned $60,000 to his friend. The debt is now uncollectible. If the loan created a bona fide debt, James recognizes a capital loss.

Question

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If the loan created a bona fide debt, and James is able to prove that it is uncollectible, then he can claim a capital loss on his taxes. However, if the loan was not a bona fide debt (i.e. it was a gift, or there was no expectation of repayment), then James cannot claim a loss on his taxes.

Three Years Ago, James Loaned $60,000 to His Friend