i've won a small claims lawsuit,the defendant died before i could collect. could this loss be tax deductible?

Question

the defendant was a bad contractor, who never fulfilled the contract.

if we could claim it as a financial loss, what additional documents would we need? Right now, all i have is a judement mailed to me from the court.

Answer 1

You must establish that you have taken reasonable steps to collect the debt and the debt is worthless. It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. You may take the deduction only in the year the debt becomes worthless. A debt becomes worthless when the surrounding facts and circumstances indicate there is no longer any chance the amount owed will be paid. You do not have to wait until a debt is due to determine whether it is worthless.

A nonbusiness bad debt is reported as a short–term capital loss in Part 1 on Form 1040, Schedule D. It would be subject to the capital loss limitations. A nonbusiness bad debt deduction requires a separate detailed statement attached to your return

Answer 2

From IRS Publication 17, page 99: bad debts that did not come from operating your trade or business are non-business bad debts and are deductible as short term capital losses" so it would go on schedule D. You can only deduct it if the debt is totally worthless, so in addition to the court judgement papers, you'd need something to show that you could not collect it from the estate.

Answer 3

If you are in the UK, you have to battle it out on your own! Go to the County Court Office and ask about Bailiffs - fill in the requisit form and pay the fee. It's easy for someone else (a "partner" - so no proof of divorce) in ex-landlord's house to claim that he/she no longer lives there; happened to us. I think that if the small Claims Court makes an order which is ignored, it should then become a Criminal offence, but obviously the law doesn't think so.

Answer 4

Unless this is a business debt, it is treated as a short-term capital loss. Short-term capital losses can be used to offset ordinary income up to $3,000. Any loss exceeding that must be carried forward to the next tax year as a short-term loss.

Answer 5

You could try to get it from his estate. Find out the executors name, and give him a copy of the judgement.

Answer 6

You don't have a financial loss or gain. Nothing happened. There is no tax on nothing and no tax deduction.

Answer 7

It sounds as if you have what you need, but I would check with your local laws and contact a lawyer for advise. Good luck to you.

Answer 8

that should suffice
you possibly could claim the funds from his estate/will