. In 2016, Tom loaned his friend Janelle $5,000 to invest in various stocks. Janelle signed a note to repay the principal with interest. In 2017, the stock market plunged and Janelle incurred large losses. In late 2017, Janelle declared personal bankruptcy and Tom was unable to collect any of the loan. Tom had no other gains or losses in 2016 or 2017. His income from wages in both 2016 and 2017 was $50,000. The result is:

Tom deducts a business bad debt of $5,000 in 2016.

Tom deducts a $5,000 capital loss in 2016.

Tom deducts a business bad debt of $3,000 in 2016 and carries $2,000 over to subsequent years.

Tom deducts a $3,000 capital loss in 2016 and carries $2,000 over to subsequent years.

Tom must amend her 2015 tax return to deduct the loss.