During 2015,Wan-Ying,a lawyer,made a bona fide $5,750 loan to her friend Bill when he was in a time of need.Bill died in 2016.Wan-Ying has been informed by Bill's estate that he was insolvent.What is her deduction ton her 2016 tax return (she has no other capital transactions)?

Question

Quizplus · Accepted Answer

Wan-Ying can claim a bad debt deduction for the loan made to Bill only if it can be established that the debt was completely worthless. Since Bill's estate has informed Wan-Ying that he was insolvent, she can claim a deduction for the amount of the loan up to the amount of Bill's insolvency, which is $3,000 ($5,750 loan minus $2,750 insolvency limit). The correct answer, therefore, is option C.

During 2015,Wan-Ying,a Lawyer,made a Bona Fide $5,750 Loan to Her