@taxproDE What you will sometimes find here is not an answer based on any reliable source but on what Eliza Doolittle would call "middle class morality." If it must involve business, why is there a whole body of law based on nonbusiness (you might even say, "personal") bad debts?
The Pub 550 example goes back at least 15 years; this is from the 2008 edition:
"Insolvency of contractor. You can take a bad debt deduction for the amount you deposit with a contractor if the contractor becomes insolvent and you are unable to recover your deposit. If the deposit is for work unrelated to your trade or business, it is a nonbusiness bad debt deduction."
It probably goes back much further than that, maybe even to the years I worked in the IRS National Office and occasionally was asked to review forms and publications. I know the system. Paragraphs don't appear in them magically. This must have been inspired by a court case with those facts. The court case is likely so old that it can't be found with a Google search. Pay me enough money and I will find it, but if all your client has at stake is $1,500 (the deduction just reduces LTCG's that are being taxed at 15%) it's not worth it. On the other hand, it's not worth that much for IRS to audit him either.
My concern is whether the deposit was paid to an individual, dead or alive, or to an entity that still exists. It used to be that fraud, even when related to nonbusiness affairs, was deductible. But that was before the Rich People Tax Relief Act of 2017. Your client might have benefited from that, for more than $1,500.
