Last year, Abby loaned her friend, Pat, $10,000. Although Pat had signed a note payable that contained interest payments and a maturity date, the loan had not been repaid this year when Pat died insolvent. For this year, assuming that the loan was bona fide, Abby should account for nonpayment of the loan as a(n)
A) itemized deduction.
B) ordinary loss.
C) long-term capital loss.
D) short-term capital loss.
D) short-term capital loss.
Because the debt is not related to Abby's trade or business, it is a nonbusiness bad debt. All nonbusiness bad debts are deductible as short-term capital losses after determined totally worthless.
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