Question

Two years ago, Gina loaned Tom $50,000. Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance. Last year, when the balance owing on the loan was $16,000, Tom defaulted on the note. As of the end of last year, there appeared to be no reasonable prospect of Gina recovering the $16,000. As a consequence, Gina claimed the $16,000 as a nonbusiness bad debt. Last year, Gina had AGI of $50,000, which included $14,000 of net long-term capital gains. Gina did not itemize her deductions. During the current year, Tom paid Gina $5,000 in final settlement of the loan. How should Gina account for the payment in the current year? a. File an amended tax return for last year. b. Report no income for the current year. c. Report $5,000 of income for the current year. d. Report $14,000 of income for the current year. e. None of these

Answer 1

TWO YEAR AGO

GINA LOANED TOM $50,000

TOM SIGNED A NOTE

- MONTHLY PAYMEMT OF $2000 PLUS 6% INTERST ON THE OUTSTANDING BALANCE

LAST YEAR TOM DEFULTED

AMOUNT WAS $16,000

AT THE END OF THE LAST YEAR

- NO RESONABLE PROSPECT OF GINA RECOVERING THE $16,000

GINA HAD AGI  - $50,000 ( WHICH INCLUDE $14,000 OF NET LONG TERM CAPITAL GAIN)

DURING THE CURRENT YEAR TOM PAID GINA $5000 IN A FINAL SETTLEMENT OF THE LOAN

= GINA SHOULD REPORTED THIS INCOME ON THE TAX BENEFIT RULE , GINA INCOME FOR THE CURRENT YEAR WAS 5000.

SO ALL OPTION ARE IONCORRECT AND THE CORRECT ANSWER IS E ( NONE OF THE ABOVE )

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