Is this a Bad Debt?


A

Alan Zengel

In 2000, I joined a private golf club owned by the developer. I paid
$50,000 and $40,000 was supposed to be "equity" that would come back to me
without interest at the time when I resigned.

Now the developer wants to sell the club to the members and I feel certian
they will not buy it. If it becomes resonably clear that I will not get the
$40,000 back, can I take it off of Ferderal tax as a bad debt? What would I
need as proof to IRS that it is indeed a bed debt?

Alan Zengel
 
J

Jim Kingdon

In 2000, I joined a private golf club owned by the developer. I paid
$50,000 and $40,000 was supposed to be "equity" that would come back to me
without interest at the time when I resigned.
OK, I'm not sure how club memberships are handled (you'll need to
check on this), but for the sake of argument I'll assume that you
bought an asset for $40,000.
Now the developer wants to sell the club to the members and I feel
certian they will not buy it. If it becomes resonably clear that I
will not get the $40,000 back
Suppose that you can sell your membership to the club for $1. That's
the easiest way to handle it (again, if treating this as an asset is
correct) - report a capital loss of $39,999 on Schedule D.

If an asset (in the schedule D sense) becomes worthless (like stock in
a company which goes bankrupt, and you can't even sell the shares for
a token amount), there is a procedure for writing "worthless" on
schedule D. I'm not sure what documentation the IRS wants to see, but
it does raise their eyebrows at least a bit. So I've always preferred
to sell the stock for a pittance if there is someone who will buy it
for that. I don't know all the ins and outs (like what if you call it
worthless and then it later becomes worth something).
can I take it off of Ferderal tax as a bad debt? What would I need as
proof to IRS that it is indeed a bed debt?
Bad debt as in schedule C? No, that's for the case where you had
recorded a sum as income (like, you sent them a bill and counted it as
income then) but it later became clear that you weren't going to get
the money.
 
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P

Paul Thomas, CPA

Alan Zengel said:
In 2000, I joined a private golf club owned by the developer. I paid
$50,000 and $40,000 was supposed to be "equity"
that would come back to me without interest at the time
when I resigned.

Now the developer wants to sell the club to the members
and I feel certian they will not buy it. If it becomes resonably
clear that I will not get the $40,000 back, can I take it off of
Ferderal tax as a bad debt? What would I need as proof
to IRS that it is indeed a bed debt?





Unfortunately this looks like a personal asset (no business or investment
purpose) and as such, any losses would be personal losses and not
deductible.

You'd be hard pressed to claim a theft loss.
 

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