26 USC 166 - Bad debts

U.S Code last checked for updates: Nov 25, 2024

§ 166.

Bad debts

(a)

General rule

(1)

Wholly worthless debts

(2)

Partially worthless debts

(b)

Amount of deduction

[(c)

Repealed. Pub. L. 99–514, title VIII, § 805(a), Oct. 22, 1986, 100 Stat. 2361]

(d)

Nonbusiness debts

(1)

General rule

In the case of a taxpayer other than a corporation—

(A)

subsection (a) shall not apply to any nonbusiness debt; and

(B)

where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 1 year.

(2)

Nonbusiness debt defined

For purposes of paragraph (1), the term “nonbusiness debt” means a debt other than—

(A)

a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or

(B)

a debt the loss from the worthlessness of which is incurred in the taxpayer’s trade or business.

(e)

Worthless securities

(f)

Cross references

(1)

For disallowance of deduction for worthlessness of debts owed by political parties and similar organizations, see section 271.

(2)

For special rule for banks with respect to worthless securities, see section 582.

(Aug. 16, 1954, ch. 736, 68A Stat. 50; Pub. L. 85–866, title I, § 8, Sept. 2, 1958, 72 Stat. 1608; Pub. L. 89–722, § 1(a), Nov. 2, 1966, 80 Stat. 1151; Pub. L. 91–172, title IV, § 431(c)(1), Dec. 30, 1969, 83 Stat. 619; Pub. L. 94–455, title VI, § 605(a), title XIV, § 1402(b)(1)(A), (2), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1575, 1731, 1732, 1834; Pub. L. 98–369, div. A, title X, § 1001(b)(1), (e), July 18, 1984, 98 Stat. 1011, 1012; Pub. L. 99–514, title VIII, § 805(a), (b), title IX, § 901(d)(4)(A), Oct. 22, 1986, 100 Stat. 2361, 2379; Pub. L. 100–647, title I, § 1008(d)(1), (2), Nov. 10, 1988, 102 Stat. 3439.)

cite as: 26 USC 166