How much repayment does he include in his income

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(a) In 2010 Jim loaned Patti $6,000, as a personal loan. In 2014 (when the outstanding loan is still $6,000), Patti informs Jim that she will not be able to repay the loan. In 2014, Jim has $2,500 short-term capital gain and $40,000 wage income. In 2015, Patti repays the $6,000. How much, if any, of that does Jim have to include in his income for 2015?

(b) Jim is a single filer. If Jim was in the 22% tax bracket in 2014 and the 12% tax bracket in 2015, is he better or worse off as a result of part (a)? By how much?

(c) Suppose, instead, that Jim has a $4,500 short-term capital gain in 2014. How much, if any, of the 2015 repayment does he include in his income?

Reference no: EM132918285

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