Tim loaned a friend $4,000 to buy a used car. In the current year, Tim's friend declares bankruptcy and the debt is considered totally worthless. What amount may Tim deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year?

a. $4,000 ordinary loss

b. $2,000 short-term capital loss

c. $4,000 short-term capital loss

d. $3,000 ordinary loss

e. $3,000 short-term capital loss

Question

Adrianna Hester

Business

30 January, 20:58

Tim loaned a friend $4,000 to buy a used car. In the current year, Tim's friend declares bankruptcy and the debt is considered totally worthless. What amount may Tim deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year?

a. $4,000 ordinary loss

b. $2,000 short-term capital loss

c. $4,000 short-term capital loss

d. $3,000 ordinary loss

e. $3,000 short-term capital loss

+3

Answers (1)

Know the Answer?

Karsyn Waters · Answer 1

Option E is the correct option

$3,000 short-term capital loss

Explanation:

Since the Loan is of Non-business in nature, can claim maximum of $3,000 in current year and remaining could be carry forwarded Against ordinary income on individual return