Nonbusiness Bad Debt

Nonbusiness Bad Debt means:
a bad debt in which the obligation was not generated by activities involving a trade or business, but perhaps by a personal loan. A bad debt not connected with the taxpayer trade or business. An uncollectible loan to a friend of the the taxpayer or a deposit to a contractor who becomes insolvent are examples. If the taxpayer efforts to collect the debt are unsuccessful, a nonbusiness bad debt is deductible as a short-term capital loss in the year the debt becomes entirely worthless. No deduction is allowed unless the debt is totally worthless, and then the deduction is treated as a short-term capital loss no matter how old the debt. Former IRC (check if this IRC provision is current here) § 166(d).