26 U.S.C. § 166
§ 166. Bad debts
No plain-English explainer yet. Below is the official text. Explainers are being added section by section.
History
Part of the code since 1954. Last changed November 10, 1988 by the Technical and Miscellaneous Revenue Act of 1988.
Every change, newest first (8)
- November 10, 1988Technical and Miscellaneous Revenue Act of 1988
- October 22, 1986Tax Reform Act of 1986
- July 18, 1984Deficit Reduction Act of 1984
- October 4, 1976Tax Reform Act of 1976
- December 30, 1969Tax Reform Act of 1969
- November 2, 1966Public Law 89-722
- September 2, 1958Public Law 85-866
- August 16, 1954Internal Revenue Code of 1954 (original text)
The law as written
Current through Public Law 119-102. Amendment notes omitted.
Structure
There shall be allowed as a deduction any debt which becomes worthless within the taxable year.
When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction.
For purposes of subsection (a), the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
In the case of a taxpayer other than a corporation—
subsection (a) shall not apply to any nonbusiness debt; and
where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 1 year.
For purposes of paragraph (1), the term “nonbusiness debt” means a debt other than—
a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or
a debt the loss from the worthlessness of which is incurred in the taxpayer’s trade or business.
This section shall not apply to a debt which is evidenced by a security as defined in section 165(g)(2)(C).