Monty loaned his friend Ned $19,000 three years ago. Ned signed a note and made payments…

Monty loaned his friend Ned $19,000 three years ago. Ned signed
a note and made payments on the loan. Last year, when the remaining
balance was $14,250, Ned filed for bankruptcy and notified Monty
that he would be unable to pay the balance on the loan. Monty
treated the $14,250 as a nonbusiness bad debt. Last year before
considering the tax implications of the nonbusiness bad debt, Monty
had capital gains of $5,700 and taxable income of $33,250. During
the current year, Ned paid Monty $12,825 in satisfaction of the
debt.
Determine Monty’s tax treatment for the $12,825 received in the
current year.
The nonbusiness bad debt of $14,250 would have been reported as
a short-term capital loss , and ($____) would be included in
Monty’s gross income.

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