How is a partially worthless nonbusiness bad debt treated for tax purposes?
Understand the Problem
The question is asking how the IRS treats a partially worthless nonbusiness bad debt regarding tax deductions. It presents multiple choice options, suggesting the user is seeking clarification on the tax treatment for such a debt.
Answer
Nonbusiness bad debts must be totally worthless to be deductible.
A partially worthless nonbusiness bad debt cannot be deducted for tax purposes.
Answer for screen readers
A partially worthless nonbusiness bad debt cannot be deducted for tax purposes.
More Information
For tax purposes, only nonbusiness bad debts that are completely worthless can be deducted. Once considered completely worthless, they can be reported as short-term capital losses.
Tips
A common mistake is attempting to deduct partially worthless nonbusiness bad debts, which is not allowed. Ensure the debt is considered totally worthless before claiming a deduction.
Sources
- Nonbusiness Bad Debts - IRS - irs.gov
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