Question

Mary incurred a $20,000 nonbusiness bad debt last year. She also had an $18,000 long-term capital gain last year. Her taxable income for last year was $25,000. During the current year, she unexpectedly collected $12,000 on the debt. How should Mary account for the collection?
a.$0 income
b.$11,000 income
c.$8,000 income
d.$12,000 income
e.None of these choices are correct.

Answer 1

Answer:

The correct option is (D)

Explanation:

Non-business obligations are treated as capital losses only in short-run. Subsequently, the $20,000 bad-debt can counterbalance the $18,000 of long term capital additions. Furthermore, the tax break was $20,000 in the last years, and so the amount she received on the debt is 12000$. Therefore, 12000$ is the income which is unexpectedly collected is the total income of marrying.