Jed is an electrician. Jed and his wife are accrual basis taxpayers and file a joint return. Jed wired a new house for Alison an
d billed her $15,000. Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement. Jed was able to collect the judgement but not the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year?
Assuming that the court didn't charge any legal fee to Jed and Jed also the lawyer for this case didn't charge him anything, Jed had personally planned to get $15,000. Subtracting the amount initially paid, $10,000, Jed still needs $5,000 from Alison. Assuming a fair judgement was made, giving Jed 2,000 and subtracting this from his expectation of $5,000 we remain with $3,000. Therefore, we can conclude that the $3,000 is the loss he should record out of this deal.
