Cheryl provided a personal loan $27,500 to her friend Ned $27,500 three years ago. Ned signed a
Question:
Cheryl provided a personal loan $27,500 to her friend Ned $27,500 three years ago. Ned signed a note and made small payments on the personal loan. Last year, when the remaining balance was $20,750, Ned notified Cheryl that he could not pay the balance on the loan. Last year (2020), Cheryl had capital gains of $8,100 and taxable income of $31,500. Early in the current year (2021), Ned contacted to let her know he could make payments again and during the year paid Cheryl $18,225 towards the loan principle.
On her 2021 tax year return, how does Cheryl treat the $18,225 received in the current year? Explain how you reached the answer and what tax rules cover your decisions.
South Western Federal Taxation 2015 Essentials Of Taxation Individuals And Business Entities
ISBN: 9781285438290
18th Edition
Authors: James Smith, William Raabe, David Maloney, James Young