I was out of town for a few days end of last week and still digging from email. Anyway bad debts are short-term capital losses. There is no issue as to writing them off. The value of the write-off and the timing are an issue.
Short-term capital losses can be used against capital gains and you can deduct an additional $3,000 a year. I don’t recall that you have a lot of investments would create capital gains. Therefore you will write them all off in one year but you only get to use $3,000 of that write-off. The timing is the other issue. The write-off should start in the year the notes become uncollectible. I have never seen the IRS do it but they could say you should have written the notes off in an earlier year and that would mean you would have lost some of the deduction. I wouldn’t be overly concerned about this timing issue just want to make sure that you are aware in the off chance it comes up.
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