Problem $7-32($Algorithmic$)($LO$.1)$

Monty loaned his friend Ned $$11,000$ three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $$9,900,$ Ned filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan. Monty treated the $$9,900$ as a nonbusiness bad debt. Last year, before considering the tax implications of the nonbusiness bad debt, Monty had capital gains of $$3,960$ and taxable income of $$54,250.$ During the current year, Ned paid Monty $$8,910$ in satisfaction of the debt.

Determine Monty's tax treatment for the $$8,910$ received in the current year.

The nonbusiness bad debt of $$9,900$ would have been reported as a

$,$ and $fill in the blank $2$ would be included in Monty's gross income this year.