Six years ago, Mr. Ahmed loaned $10,000 to a neighbor in exchange for an interest-bearing debt obligation. This year, the neighbor informed Mr. Ahmed that he was defaulting on the debt. What are the tax consequences to Mr. Ahmed of this bad debt?

Question

Quizplus · Accepted Answer

When a taxpayer loans money in a non-business context and that loan becomes worthless (i.e., the debtor defaults), the loss is generally considered a nonbusiness bad debt. Nonbusiness bad debts are treated as short-term capital losses regardless of how long the loan was outstanding.

Six Years Ago, Mr