Nonbusiness bad debt (1040)

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To report a nonbusiness bad debt on Form 8949, use the steps in this article. See Publication 550 for more information regarding bad debt.

  1. Open the B&D screen in the Income folder, and then open the Schedule for detail statement.
  2. In the 8949 Box column, choose 3 Box C or F - Not reported on 1099-B.
  3. In the Type column, choose N Nonbusiness.
  4. In the Desc column, enter the name of the debtor and "bad debt statement attached". If you run out of space, abbreviate the debtor name.
  5. In the Date Acq'd and Date Sold columns, enter Wrthless.
  6. In the 1=S, 2=L, 3=28% column, make sure that 1 appears. If it doesn't, select 1 Short-term in the Force column.
  7. In the Cost/Basis column, enter the basis of the bad debt.
  8. In the Sales Price column, enter 0.

Per Publication 550, attach a statement to the tax return for each bad debt. The statement must contain the following:

  • A description of the debt, including the amount, and the date it became due
  • The name of the debtor, and any business or family relationship between the taxpayer and the debtor
  • The efforts the taxpayer made to collect the debt
  • The reason that the taxpayer decided the debt was worthless. For example, show that the borrower has declared bankruptcy, or that legal action to collect would probably not result in payment of any part of the debt.

For more information about attaching a statement, see Attaching Portable Document Format (PDF) files to electronic files.

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