Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.
Q. I lent money to an in-law. We executed a promissory note with the rate of interest and dates and amounts of payments. He made several payments, then discontinued. I tried to get repaid, but he always had problems of health, no job, etc. He has now gone into bankruptcy and listed me as one of the creditors. Can I deduct the loan as a 4797 loss in the year of bankruptcy?
A. If the debt is not a business bad debt, you can take the loss as a short-term capital loss, which is limited to $3,000 a year. Business bad debt is fully deductible to the extent that the obligation became worthless during the tax year. A business bad debt is defined as a debt that resulted from the conduct of the taxpayer's business or that became worthless in connection with the taxpayer's business.
Q. I sold a home in 1996 at a $12,000 loss and then purchased another home. I incurred capital gains in mutual funds in order to purchase the home. Is there any way I can write off the loss on the home that I sold against the gains I incurred with the mutual funds?
A. No, if this home is your personal residence. A loss on the sale of a personal residence is allowed to an individual when the residence was used as part of a trade or business, or in a transaction that was entered into for profit.
The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.
To ask a tax question, call Sundial at (410) 783-1800. Call 268-7736 in Anne Arundel County, 836-5028 in Harford County and 848-0338 in Carroll County. Using a Touch-Tone phone, punch in the four-digit code 6225 after you hear the greeting.
Readers also can e-mail questions through The Sun's Website -- www.sunspot.net. Visitors to the Website will be able to access an archive of the questions and answers as well as other useful tax information and links.
Selected questions will be answered in the Business section. No questions will be answered by phone.
Pub Date: 2/11/97