Monty loaned his friend Ned $13,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $9,750, Ned filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan. Monty treated the $9,750 as a nonbusiness bad debt. Last year before considering the tax implications of the nonbusiness bad debt, Monty had capital gains of $3,900 and taxable income of $43,750. During the current year, Ned paid Monty $8,775 in satisfaction of the debt. Determine Monty's tax treatment for the $8,775 received in the current year. The nonbusiness bad debt of $9,750 would have been reported as a and $ would be included in Monty's gross income short-term capital loss long-term capital loss ordinary loss
Monty loaned his friend Ned $13,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $9,750, Ned filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan. Monty treated the $9,750 as a nonbusiness bad debt. Last year before considering the tax implications of the nonbusiness bad debt, Monty had capital gains of $3,900 and taxable income of $43,750. During the current year, Ned paid Monty $8,775 in satisfaction of the debt. Determine Monty's tax treatment for the $8,775 received in the current year. The nonbusiness bad debt of $9,750 would have been reported as a and $ would be included in Monty's gross income short-term capital loss long-term capital loss ordinary loss
Chapter7: Deductions And Losses: Certain Business Expenses And Losses
Section: Chapter Questions
Problem 29P
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Transcribed Image Text:Monty loaned his friend Ned $13,000 three years ago. Ned signed a note and made payments
on the loan. Last year, when the remaining balance was $9,750, Ned filed for bankruptcy and
notified Monty that he would be unable to pay the balance on the loan. Monty treated the
$9,750 as a nonbusiness bad debt. Last year before considering the tax implications of the
nonbusiness bad debt, Monty had capital gains of $3,900 and taxable income of $43,750.
During the current year, Ned paid Monty $8,775 in satisfaction of the debt.
Determine Monty's tax treatment for the $8,775 received in the current year.
The nonbusiness bad debt of $9,750 would have been reported as a
and $
would be included in Monty's gross income
short-term capital loss
long-term capital loss
ordinary loss
Expert Solution
Step 1
Non business debt is a debt that is unrelated to taxpayer's business. Bad debts from the non business will always be recorded as short term capital loss of the business.
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