(a) In 2010 Jim loaned Patti $5,000, as a personal loan. In 2014 (when the outstanding loan is still $5,000), Patti informs Jim that she will not be able to repay the loan. In 2014, Jim has $1,000 short-term capital gain and $40,000 wage income. In 2015, Patti repays the $5,000. How much, if any, of that does Jim have to include in his income for 2015?

(b) If Jim was in the 12% tax bracket in 2014 and the 37% tax bracket in 2015, is he better or

worse off as a result of part (a)? By how much?

(c) Suppose, instead, that Jim has a $3,000 short-term capital gain in 2014. How much, if

any, of the 2015 repayment does he include in his income?