Problem:
Sue loaned her friend john $15K four years ago. John signed a note and made payments on the loan. Last year, when the remaining balance of the loan was $8K. John filed bankruptcy and notified Sue that he would be unable to repay the $8K balance remaining on the loan. Sue treated the $8k as a bad debt. Last year Sue had net long-term capital gains of $1K and taxable income of $41K. Sue did not itemize her deductions last year. During the current year, John paid Sue $5K in satisfaction of the debt. Determine Sue's tax treatment for the $5000 received in the current year.