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Silver tax lining with crooked contractor

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in Small Business Tax

Q: I hired a contractor to build a deck on our house for $15,000. We gave him $5,000 up-front for materials, etc. Now he's skipped out and we can't find him. Can I deduct the $5,000 deposit as a casualty loss deduction? R.S., Blawenburg, N.J.

A: Even better, you can deduct the loss as a nonbusiness bad debt. You can treat the nonbusiness bad debt as a capital loss, which you can use to offset capital gains and up to $3,000 of ordinary income. Conversely, you can deduct the loss of a personal asset as a casualty loss only after the loss, when added to other personal casualty losses for the year, exceeds 10 percent of your adjusted gross income. So, you'd likely gain no deduction for the "theft." Tip: You can realize capital gains before year-end that absorb the $5,000 capital loss.

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