A realtor may say location, location, location. But, a CPA will say document, document, document! If you want to deduct bad debts, you must have made real, serious attempts to collect the debt.

A debt that cannot be repaid becomes "wholly or partially worthless." To claim a tax deduction for a worthless business debt, the taxpayer must show the existence of a valid debtor-creditor relationship, that the debt was created or acquired in connection with a trade or business, the amount of the debt, the reason that the debt is worthless, and the year that the debt became worthless. You must show the proper documentation including any attempts to collect and the tax year(s) involved.

Worthless debts arising from unpaid wages, salaries, fees, rents, and similar items of taxable income for an individual are not deductible as bad debts unless the income that these items represent has been included in the taxpayer's income.

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