Carrie loaned her friend $4,500 to buy a used car. She had her friend sign a not
ID: 2492301 • Letter: C
Question
Carrie loaned her friend $4,500 to buy a used car. She had her friend sign a note with repayment terms and set a reasonable interest rate on the note because the $4,500 was most of her savings. Her friend left town without a forwarding address, and nobody Carrie knows has heard from her in the last year.
How should Carrie treat the bad loan for tax purposes?
This is a bad debt. Assuming this is Carrie's only capital gain or loss, she may claim a $ ( ) short-term capital loss in the current year and any remaining amount.
Explanation / Answer
Since the loan is not out of a business and hence the bad loan cannot be taken as any deduction from other sources of income.
If it is out of business and the same can be claimed as deduction in the year of bad loan.