For which type of debt does George receive a deduction when the loans become worthless?

The correct answer highlights that George can claim a deduction for a short-term capital loss when the loans he made become worthless. This situation typically arises when a taxpayer invests in loans or other financial instruments that have no remaining value due to failure of the borrower to repay.

Short-term capital losses generally arise from the sale or exchange of capital assets held for one year or less. In this case, if the loans were not held long enough to qualify for long-term capital treatment or were inherently of a capital nature, the loss would indeed be categorized as a short-term capital loss, allowing George to offset other capital gains or deduct from ordinary income, subject to specific limitations.

The other types of debt outlined in the question relate to different contexts or classifications of losses. Ordinary losses arise from typical business operations or activities rather than specific capital investments. Business bad debt pertains to debts owed to a business, which could also qualify for specific treatment under tax regulations. Investment loss typically relates to losses on the sale of investment properties or securities but may not directly categorize worthless loans in the same way. Understanding these distinctions is crucial for determining the appropriate deduction type in relation to loan worthlessness.