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,. · ~I'HE WEEK IN REVIEW- 81-19 -8- MayS, 1981 <br /> <br />· Reasonable steps have been taken to collect the debt. It is not necessary to <br /> sue for payment in court if you can show that a judgment from the court <br /> would be uncollectible, as would be the case of a bankrupt debtor, <br /> <br />· You have incurred an actual loss of money or have previously reported the <br /> amount as income. <br /> <br />The tax deduction may be taken only in t~e year the debt actually becomes worthless. However, <br /> you do not have to wait until a debt becomes due to determine whether it is worthless. No de- <br /> duction is allowed for a loan made (usually to a relative or friend) if you later forgive the debt. <br /> This is considered a gift, and not a loan, which in certain circumstances may generate a gift tax <br /> liability. <br /> <br />Examples of Nonbusiness Bad Debts <br /> <br />An architect makes loans to several clients, other than in the ordinary course of his business. If these <br /> loans subsequently become worthless, they are deductible only as nonbusiness bad debts since the <br /> architect was not in the business of lending money and the loans did not have a close relationship <br /> to his business. <br /> <br />You contract with a builder to construct a hom~.When the home is completed, liens are filed against <br /> the property by mechanics and material suppliers who have not been paid by the builder. To keep <br /> from losing your home, you pay off the debts. If there is no chance of receiving payment from <br /> the builder, and any judgment would be uncollectible, the amounts paid are nonbusiness bad debts. <br /> <br />If you guarantee a loan, you may have a nonbusiness bad debt only if the reason for making the <br /> guarantee was for investment pur. poses, If you guarantee a loan as a favor for family or friends <br /> and you receive nothing in return, you may not take a deduction for any subsequent payments <br /> on the loan as a result of your guarantee. <br /> <br />These are just some thoughts to consider. Your tax advisor can provide more detailed information <br /> and should, of course, be consulted before any action is taken. <br /> <br />Work is a grand cure o fall the maladies <br />that ever beset mankind. <br /> ....... Thomas Carlyle <br /> <br /> Deloitte <br />.Haskln$+Se]] . <br /> <br /> <br />