forgiving debt

[GrayHare]

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.

 

[Dash man]

This might help: http://www.nolo.com/legal-encyclopedia/when-can-you-deduct-nonbusiness-debts.html


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[braumeister]

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.

 

[LoneAspen]

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.