How should satsuki treat the loss relating to this debt, Ask an Expert

Accounting

In 2006, Satsuki (a single taxpayer) loaned $20,000 to his friend Freda. In 2013, Freda declared bankruptcy, with the result that the debt became totally worthless. How should Satsuki treat the loss relating to this debt (assume that the debt is a nonbusiness debt that is a bona fide debt that arose from a debtor-creditor relationship)?

a. As an itemized deduction

b. As a long-term capital loss

c. As a short-term capital loss

d. Satsuki may not take any deduction relating to the debt (it is a nonbusiness debt)

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M938551

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