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6 August, 21:00

Last year, taxpayer had a $10,000 nonbusiness bad debt. Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000. If taxpayer collects the entire $10,000 during the current year, $8,000 needs to be included in gross income.

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  1. 6 August, 21:16
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    True

    Explanation:

    According to the IRS, nonbusiness bad debts are debts that don't fall into any of these three categories:

    Loans to clients, suppliers, distributors, and employees Credit sales to customers, or Business loan guarantees

    In order for a nonbusiness bad debt to be deductible, it has to be worthless. Nonbusiness bad debts cannot be deducted partially unlike business bad debts. They are deducted as short-term capital losses.

    In this case if the taxpayer was able to collect his nonbusiness bad debt then there is nothing to be deducted. The taxpayer must include both the $8,000 (short-term capital gain) and the $35,000 (taxable income) in his gross income.
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