Uncollected balance of judgment deductible?

My dad lent his brother-in-law a substantial amount of money 10 years ago, and never paid it back due to his new wife's need to live well. After 7 years in court, we got back the approx. amount of the loan, plus a judgment for much more. That was all the money our lawyers could get their hands on (pure luck...we had the number of a CD they were hiding). Soon after that they went into bankruptcy and my dad is a major creditor, but never collected on this and never will. So we are wondering if this large uncollected amount is deductible, even though it exceeds original loan.

I found a similar tax case online - but it involved personal injury judgment so no actual monetary loss other than the uncollected judgment- with the following written in the final judgment:

Section 165(c) provides a deduction from income for taxpayers who incur an uncompensated loss relating to a trade or business, to a transaction entered into for profit, or to a casualty resulting in an uncompensated loss of property

So my question is, even though my dads business is not money lending, it was a "transaction entered into for profit" in the sense that a market interest was mentioned on the note. Or does the fact that he primarily did it out of familial loyalty outweigh that?

Reply to
Phil
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"Phil" wrote

Um, no. Sorry. But he's only at a tax loss for the amount of cash he actually lost. If that's been recovered already, then the remainder - the unpaid interest, etc and so on - was never in his possession, was never recorded or reported as taxable income, so there is nothing to deduct beyond that.

Legal fees may be deductible on Schedule A though.

Reply to
Paul Thomas, CPA

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