Determine monty tax treatment

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Question - Monty loaned his friend Ned $27,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $21,600, Ned filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan. Monty treated the $21,600 as a nonbusiness bad debt. Last year, before considering the tax implications of the nonbusiness bad debt, Monty had capital gains of $8,640 and taxable income of $40,250. During the current year, Ned paid Monty $19,440 in satisfaction of the debt. Determine Monty's tax treatment for the $19,440 received in the current year.

Reference no: EM133099401

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