Writing off Bad Business Debt?

[William Hall]

I entered into a contract for sale with a tenant back in 2005. In Dec 2006, I had contract drawn up and buyer claimed he had placed a deposit in escrow, as well as signing his copy of the contract. In 90+ e-mails, we discuss the terms of the contract, and he states he received the finalized contract, signed it and mailed it back (I was working in a different state at the time). Of course, signed contract never arrives, and I eventually lost the property to foreclosure. My gripe at the time is that I stopped entertaining other offers for rent or purchase on his word.

I now know to check criminal history too, I would have found out this guy served 2 years for bank fraud in TX and had a history of running up credit on businesses and filing BK.

Several attorneys advised me I would probably win the case hands down (b/c of the e-mails and his prison record), but it would be in the neighborhood of 20K to recover my loss (about 50K). The statute of limitations of breach of contract ran out this past December; I want to know can I write off the loss as uncollectible business debt this year, and could it carry over into future years?

I have sucessfully written off a judgment before as uncollectible debt, do I need a judgment in this case?

PS-all I will say is this gentleman is one of the biggest night club owners in Vegas; he's broke as can be, but puts on a great front!

[Bill Walston]

William Hall I'm afraid you're out of luck. Bill Gulley is correct when he says "bad debts must have been earned." This means that in order for you to deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. That didn't happen here. You have no basis for a write off.