Entering bad debt in Lacerte

Table of contents:

How do I enter non-business bad debt into an S-Corporation return?

To enter non-business bad debt:

1. Go to Screen 23, Dispositions (Schedule D, 4797, etc.).
2. Enter the name of the person who owed the debt and "bad debt statement attached" in the field "Description" (code 800) in the section Dispositions (Schedule D, 4797, etc.).
3. Enter "Date acquired (negative =various)" (code 25) and "Date sold (negative=various)" (code 26).
4. Scroll to the Schedule D section.
5. Enter "Cost or other basis (do not reduce by depreciation)" (code 29).
6. Mark the box "Nonbusiness bad debt" (code 103).

The amount in "Cost or other basis" will print as a negative number on Form 8949 and flow to Schedule D as a loss.

Lacerte will generate a diagnostic:

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Generating the non-business bad debt statement:

Disposition #: Attach a nonbusiness bad debt statement. (ref. #2025028)

Note: After creating the nonbusiness bad debt statement, the above diagnostic will still generate.  However, it will not prevent transmission of electronic files.

Create the statement in Screen 39, Notes. Be sure to select the radial button for Statement before composing your nonbusiness bad debt statement.

• Description of the 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 why the debt should be considered worthless

The statement will appear in your Forms tab as an item in Client Notes.

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How do I enter business bad debt or forgiveness of debt in the Partnership module?

In a partnership a bad debt is handled in two ways.

1. Enter the bad debt on Screen 13, Deductions under Bad debts field.
2. Then handle the disposition as a normal disposition on screen 19 Dispositions (Schedule D, 4797, etc.)
3. That way it will show on page 1 of the 1065, Line 12 and the Disposition will show on the schedule D.

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How do I enter non-business bad debt for a Partnership return?

1. Go to Screen 19, Dispositions.
2. Select Miscellaneous Info. from the left navigation panel.
3. Locate the Schedule D-Additional Information section.
4. Enter the applicable amount in the field labeled Nonbusiness bad debt (code 102).

The amount entered will be reported on Form 8949 with Box C as a short-term loss in column H with a label of Non-Business Bad Debt per Pub 550 instructions.  This loss will then flow to Schedule D like a normal disposition. 

Note: Lacerte will generate a diagnostic instructing you to attach a nonbusiness bad debt statement:, "Attach a nonbusiness bad debt statement." (ref. #26090) 

This diagnostic message will not stop the return from being e-filed, and the diagnostic cannot be cleared. To enter the statement: 

1. Navigate to Screen 34, Notes.
2. Click on Add from the bottom left navigation panel.
3. Select Statement under the Print As section from the top left navigation panel.
4. Enter the information below from Pub 550.

 Per Pub 550, for each bad debt, attach a statement to your return that contains:

• A description of the debt, including the amount, and the date it became due;
• The name of the debtor, and any business or family relationship between you and the debtor;
• The efforts you made to collect the debt; and why you decided the debt was worthless. 

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How do I enter Business Bad Debt for Form 4797 in the Individual Module

1. Go to Screen 17, Dispositions
2. Enter the applicable information regarding the sale (Description, date acquired, date sold, sales price, cost or basis)
3. Scroll down to the Form 4797 section
4. Enter an amount of prior deprecation or -1 in the field labeled Deprecation Allowed (-1 = none, triggers 4797)

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