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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 (or a bad debt(. 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 (OL) b. $4,000 short-term capital loss (STCL) c. $2,000 short-term capital loss (STCL) d. $3,000 ordinary loss (OL) e. $3,000 short-term capital loss (STCL)

Sagot :

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Answer:

e. $3,000 short-term capital loss (STCL)

Explanation:

From the given information;

Tim may deduct only $3,000 short-term capital loss (STCL) because the loan is not business-related. SO, he can claim a maximum of $3000 in the current year and the remaining can be forwarded to ordinary income on the individual return in any one tax year.

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