This article will help resolve the following critical diagnostic for nonbusiness bad debt:
- e-file: Disposition #X: Attach a nonbusiness bad debt statement. (ref. #2025028)
Follow these steps to enter the nonbusiness bad debt:
- Go to Screen 17, Dispositions (Schedule D, 4797, etc.).
- Enter the debtor's name and "Bad debt statement attached" in the field Description of Property (code 800).
- Scroll down to the Schedule D section.
- Enter the basis of the bad debt in Cost or other basis (do not reduce by depreciation) (code 29).
- Select the box Nonbusiness bad debt (code 103).
- Enter your explanation in the Explanation of nonbusiness bad debt (Ctrl+E) (code 869) field.
- In prior years this explanation field isn't available in Lacerte, to create a statement follow the additional steps below.
- Repeat steps above for each nonbusiness bad debt.
Prior year explanation
Beginning in tax year 2016, the explanation field was included in Screen 17 directly below the nonbusiness bad debt checkbox. In tax year 2015 and earlier, this explanation must be created using the Notes screen to create a statement to be included with the e-filed return.
Follow these steps to create a statement to include the explanation of nonbusiness bad debt:
- Go to Screen 47, Notes.
- Select Statement in the left Print As options.
- Enter the required information for the statement.
- Description of bad debt, including the amount, and the date it became due.
- Name of the debtor, and any business or family relationship between the taxpayer and debtor.
- Efforts made to collect the debt.
- The reason the debt should be considered worthless.
- The statement will generate as a Client Note from the Forms tab.
Lacerte will generate the diagnostic instructing you to attach a nonbusiness bad debt statement, but it won't stop the return from being e-filed and the diagnostic can't be removed (prior year programs only).
For more information, see IRS Pub. 550
