Tim Loaned a Friend $4,000 to Buy a Used Car

question 106

Multiple Choice

Tim loaned a friend $4,000 to buy a used car. In the current year, Tim's friend declares bankruptcy and the debt is considered totally worthless. What amount may Tim deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year?

• A)$4,000 ordinary loss
• B)$4,000 short-term capital loss
• C)$2,000 short-term capital loss
• D)$3,000 ordinary loss
• E)$3,000 short-term capital loss

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Definitions:

Imports

Goods and services brought into one country from another for sale, typically subject to tariffs and trade agreements.

Buyers

Individuals or entities that purchase goods or services.

Import Quotas

Limits set by a government on the quantity or value of goods that can be imported into a country, often used to protect domestic industries from foreign competition.

Tariffs

Taxes imposed by a government on imported goods, often to protect domestic industries or to raise revenue.