Client paid a contractor for home improvements that were never made - is this non business bad debt?

[ptax255]

Hi, client paid a contractor $100K+ for primary residence capital improvements. The contractor is bankrupt and this money is deemed lost. Would this be a capital loss as non-business bad debt. Or would it add to the house basis?

[Strongsilence-CPA]

Have you read the Internal Revenue Code?

[sjrcpa]

I don't see basis here if no improvements were actually built.

[IRonMaN]

"Have you read the Internal Revenue Code?"

I've never read the whole book, but I have read parts.  I was hoping to be like George Costanza and watch the movie instead of reading the whole thing 😬

[BobKamman]

I had a client many years ago who (on a return I didn't prepare) claimed the same thing as a bad debt.  He was audited, and it wasn't challenged.  So I avoid questions on the same topic.  Same thing for adjustment to basis, that's a good question.  At least we don't have to worry about casualty loss (theft of services), do we?  

[ptax255]

Theft losses would  be if the intent was for profit and that wasn't the case. 

When you say "it wasn't challenged" do you mean the IRS was ok with claiming it as bad debt capital loss?

Thank you!

[BobKamman · Accepted solution]

Is a home never an investment for profit?  "I just live there to make sure no one breaks in."  But I agree, casualty loss probably doesn't work.  Yes, IRS had no problem accepting it as a nonbusiness bad debt.