Ellen loans Nicole $45,000 to start a hair salon.Unfortunately,the business fails in 2017 and she is unable to pay back Ellen.In 2017,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 2017?

Question

Ellen loans Nicole $45,000 to start a hair salon.Unfortunately,the business fails in 2017 and she is unable to pay back Ellen.In 2017,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 2017? ​

Quizplus · Accepted Answer

Ellen can claim the $45,000 bad debt as a capital loss on her tax return. However, the maximum amount of capital loss that can be claimed in a given tax year is $3,000. Any excess loss can be carried forward to future tax years. In this case, Ellen had $15,000 of capital gains, which can be offset by the $3,000 capital loss allowed for the year, leaving a remaining $12,000 capital loss to be carried forward. Therefore, the answer is $18,000 ($3,000 claimed in 2017, with $27,000 carried forward to 2018).

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