Bad debt


F

Fearless

We're sitting on a $67,000 2nd mortgage we agreed to carry
when we sold my wife's parents' house after they had died.
The holder of the first mortgage has taken the buyer into
foreclosure and the house will be sold at auction next
month. The buyer has *not* been late in paying on the
second mortgage, but has now declared bankruptcy and so we
expect no further payments from him (we'd like them, but we
don't expect to get them now that bankruptcy proceedings are
ongoing and foreclosure is imminent). (This was investment
property for him, not a primary residence).

That is merely background. The only question we have is
what are the tax implications for us if we have to write off
the whole $67,000 as a bonafide "bad debt"? How much can we
write off our taxes and over what period can we do it?
 
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