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forgiving debt
Old 12-02-2014, 08:25 AM   #1
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forgiving debt

If I as lender forgive a debt, say $1000 plus $50 of interest, where do I record that when filing income taxes? As a capital loss of $1000 on Sched D? Interest as -$50 on Sched B? Online references have instructions for debtors but I have not found them for lenders.

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Old 12-02-2014, 08:37 AM   #2
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Old 12-02-2014, 09:18 AM   #3
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If you forgive the debt, I think you turn it into a gift.

One of the rules for deducting a worthless debt is to show your good faith efforts to collect it.
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Old 12-02-2014, 10:35 AM   #4
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I remember back when I had to do a short sale on my house, and the lender wrote off part of the debt, IRS rules said forgiven debt is treated as taxable income to the debtor, and I got a 1099 for the ~ $40k that was written off. So 1099'ing the debtor might be a requirement.

If this were me and it were "only" $1000, I'd probably avoid the hassle of dealing with the paperwork, and 1099'ing the recipient, since the tax savings on a $1000 deduction/loss isn't going to be much anyway.

Unless the debtor really pissed me off and was a deadbeat, in which case I probably would 1099 him just to spite him.
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