Monty loaned his friend Ned $20,000 three years ago. Ned signed a note and made payments on

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Monty loaned his friend Ned $20,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $11,000, Ned filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan. Monty treated the $11,000 as a nonbusiness bad debt. Last year, before considering the tax implications of the nonbusiness bad debt, Monty had capital gains of $4,000 and taxable income of $20,000. During the current year, Ned paid Monty $10,000 in satisfaction of the debt. Determine Monty’s tax treatment for the $10,000 received in the current year.

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South Western Federal Taxation 2017 Comprehensive

ISBN: 9781305874169

40th Edition

Authors: William H. Hoffman, David M. Maloney, William A. Raabe, James C. Young

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