Question

12-37 ets 72. Research Problem. In 2018, Allen Appleton sells his business to David, but he sells the claim against Fred that arose during the course of his business to George, who is not in a business. The claim becomes worthless in George's hands in 2019. Can George take a business loss for the bad debt since it originally arose in the course of a business?

Answer 1

Business loss for bad debt can be taken in the following cases:

1. Created during business

2. Closely related to the business or trade when it became worthless

3. The debt is related to you trade or business if the primary motive for incurring the debt is business related.

George does not satisfy any of the above conditions to claim business bad debt loss. He was not in business when the debt is transferred nor when it became worthless. Hence, it will be treated as non business bad debt.