Recovery

If you deduct a bad debt on your tax return and later recover (collect) all or part of it, you may have to include all or part of the recovery in gross income. The amount you include is limited to the amount you actually deducted. However, you can exclude the amount deducted that did not reduce your tax. Report the recovery as Other income on the appropriate business form or schedule.

See Recoveries in Publication 525 for more information.

Net operating loss (NOL) carryover.   If a bad debt deduction increases an NOL carryover that has not expired before the beginning of the tax year in which the recovery takes place, you treat the deduction as having reduced your tax. A bad debt deduction that contributes to a net operating loss helps lower taxes in the year to which you carry the net operating loss.

More information.   See Publication 536 for more information about net operating losses.

Where To Deduct

Use the following table to find where to deduct your business bad debts.

Table 11-2. Where To Deduct a Bad Debt

IF you are a...	THEN deduct your bad debt on...
sole proprietor	line 9 of Schedule C  (Form 1040)
farmer	line 34 of Schedule F  (Form 1040)
corporation	line 15 of Form 1120
	line 15 of Form 1120-A
	line 10 of Form 1120S
partnership	line 12 of Form 1065

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