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Several years ago John Johnson, who is in the lending business, loaned Sara $30,000 to purchase an automobile to be used for personal purposes. In
Several years ago John Johnson, who is in the lending business, loaned Sara $30,000 to purchase an automobile to be used for personal purposes. In August of the current year, Sara filed for bankruptcy, after paying back $1,000 of the loan to John. John was notified by the bankruptcy court that he could not expect to receive more than an additional $4,000. John has contacted you about the possibility of taking a bad debt deduction for the current year. Complete the letter to John that contains your advice as to whether he can claim a bad debt deduction for the current year. Maloney, Young, Nellen, & Persellin, CPAs 5191 Natorp Boulevard Mason, OH 45040 January 29, 2021 Mr. John Johnson 100 Tyler Lane Erie, PA 16563 Dear Mr. Johnson: This letter is to inform you of the possibility of taking a bad debt deduction. Your loan to Sara is a business bad debt; therefore, you are allowed to take a bad debt deduction for partial worthlessness. You will be able to take a bad debt deduction in the current year of $ 4,000 X Should you need more information or need to clarify anything, please contact me. Sincerely, John J. Jones, CPA Partner
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