Question

89. Ellen loans Nicole $45,000 to start a hair salon. Unfortunately, the business fails in 2018 and she is unable to pay back Ellen. In 2018, Ellen also had $20,000 of income from her part- time job and $15,000 of capital gain from the sale of stock. How much of the $45,000 bad debt can Ellen claim as a capital loss in 2018? a. $12,000, with $33,000 carried forward to 2019 b. $18,000, with $27,000 carried forward to 2019 c. $35,000 d. $15,000, with $30,000 carried forward to 2019 e. $0

Answer 1

In the given case option b is correct

As in the present case Nicole not paying loan to Ellen is not a Business Bad Debt and so it cannot be treated as business debt but it is to be treated as short term capital loss so as per rules can be written off against $15000 of capital gain from the sale of stock. In addition to this it can also avail $3000 loss of capital loss as a annual limitation so in way she can set off $18000 and remaining $27000 can be forwarded to next year