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In 2007, John (a single taxpayer) loaned $10,000 to his friend Gregory. In 2013, Gregory declared bankruptcy, with the result that the debt became totally worthless. How should John 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. John may not take any deduction relating to the debt (it is a nonbusiness debt)

b. As a short-term capital loss

c. As a long-term capital loss

d. As an itemized deduction38. Assume the facts stated in the prior problem. Assume further that John has no other capital gains or losses in 2013 (or any prior years). What is the maximum amount (related to the bad debt) that John can deduct in 2013?

a. $10,000

b. $7,000

c. $3,000

d. $0

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M942407

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