Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.
Q: I lent several thousand dollars of my personal money to a corporation of which I was the sole stockholder. The business went belly up in 1994 and I just closed down the corporation. Can I take a short term capital loss for that amount, and where would that be recorded?
A: Assuming that this is a nonbusiness bad debt, it would be treated as a short-term capital loss in Schedule D of your 1040, Part I, Line 1. On line 1 column (a), enter name of debtor, statement attached. Under line 1, column (f), enter amount of the nonbusiness bad debt. You must attach a statement to your tax return which includes the debt description (amount, due date, etc.) the debtor's name and any business connection to you, the efforts made to collect the debt and why you consider it to be worthless (i.e., company is bankrupt). This debt may qualify as a business bad debt, which is treated differently.
The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.