Did you make a personal loan that has become worthless? When such a non-business loan is uncollectible, you can count it as a short-term capital loss. Capital losses can offset capital gains; up to $3,000 worth of excess losses can be deducted from your other income each year.
To deduct a non-business bad debt, you should have a record that you actually made a loan. You also should be able to show you tried to collect. Your proof might be a demand for payment, a lawsuit you filed, or the engagement of a collection agency.
If you can show you tried to collect and met with no success, you can claim a failed personal loan as a short-term capital loss on Schedule D of Form 1040. You also should attach a detailed explanation to your tax return.
