any chance of deducting this bad debt on loan to un-traceable friend ?

It would likely be deductible (if it is) as a bad debt loss in the year the statute of limitations expired. That's probably more than ten years ago.

Statute of limitations ? It's not a crime (that he didn't repay me). What kind of SoL are we talking about ?

It varies by state. Here are a couple of articles:

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The statute of limitations isn't only for criminal offenses. In this case there is likely a time limit for you to sue to enforce repayment of the loan. It's either a certain number of years from the time the repayment was supposed to be made or, if no date was specified, a number of years from when the loan was made.

In California there's a limit of four years for loans evidenced by a writing, and two years when there's no writing. Each state has its own rules. I've seen some states go up to six years. You'll have to check the rules in your state, but I suspect it's much less than twenty years.

According to the links provided here, in my state (North Carolina), the SoL is either 3 or 5 years (I'm not sure which category applies). Except for "judgements" it is 10 years. Since it's definitely been well over 10 years, the SoL means I am another thing abbreviated "SoL", correct ? Well, thanks much for the help, guys.

A claim for refund or credit based on a bad debt deduction under IRC Section 166 or Section 832(c) or a worthless security loss under IRC Section 165(g) may be filed within seven years from the due date of the return for the year with respect to which the claim is made ...

That due date, in my understanding, would be the year during which you determined the debt became worthless, i.e. when "the surrounding facts and circumstances indicate there's no reasonable expectation of payment," *subsequent* to you having taken all "reasonable steps" to collect.

Ok then, this is more encouraging than the Statute of Limitations interpretation.

I guess "the year during which I determined" is mostly in my head. Only tangible thing I've done is to search for him, to no avail - as I said, extremely common first and last names and no DOB or SS# or state. If you can't find the person, I'm not sure what other "reasonable steps" the IRS would expect. For example, I don't think it's reasonable to hire a private investigator to recover a $1000 debt.

Or maybe the year it became worthless was when the SOL ran out. So if SOL runs out in five years, maybe you get seven years from the end of the five years SOL.

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Oh well, the loan was made well over 12 years ago.

Keep in mind that that SOL does not mean the debt is not still owed. It means that certain legal avenues for collection are no longer available.

It means it's not legally enforceable. Yes, the person can decide to pay you back anyway. But that's the case in any situation. The expiration of the statute of limitations means you can't legally force the other person to pay. That's what the IRS would use as a criterion, not the vain hope that the person may decide to pay some day out of the goodness of their heart.

Perhaps.

What if the SOL passed, and the debtor indicated he would repay the debt as soon as he was able, or as soon as his house sold, or some such thing? Would the IRS say it was a bad debt? I doubt it.

Plus after the SOL has passed, there may remain legal avenues for collection.

I am just saying the SOL, while important, may not be the end of the story.

Sorry, but you're just wrong.

A nonbusiness bad debt deduction requires a separate detailed statement attached to your return. The statement must contain: a description of the debt, including the amount and the date it became due; the name of the debtor, and any business or family relationship between you and the debtor; the efforts you made to collect the debt; and why you decided the debt was worthless.

I guess you might say you considered the debt had become worthless the day the guy flew off to Tierra del Fuego (or wherever) without leaving a forwarding address (of course, if that was over 7 years ago, the SOL has expired). That said, the nature of the understanding you had with the debtor remains unclear. It is also unspecified whether you've taken any steps whatsoever at any time whatsoever to recover the debt. The fact that 20 years have passed since you made the loan and there exists no written agreement between you and the debtor doesn't plead in favor of your claim, IMHO.