Monty loaned his friend Ned $16,000 three years ago. Ned signed a note and made

Monty loaned his friend Ned $16,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $12,000, Ned filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan. Monty treated the $12,000 as a nonbusiness bad debt. Last year, before considering the tax implications of the nonbusiness bad debt, Monty had capital gains of $4,800 and taxable income of $38,500. During the current year, Ned paid Monty $10,800 in satisfaction of the debt. Determine Monty's tax treatment for the $10,800 received in the current year.