In 2016,Grace loaned her friend Paula $12,000 to invest in various stocks.Paula signed a note to repay the principal with interest.Unfortunately the market for that industry sector plunged,and Paula incurred large losses.In 2017,Paula declared personal bankruptcy and Grace was unable to collect any of her loan.Grace had no other gains or losses last year or this year.The result is

Question

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C)The debt is a nonbusiness bad debt since it is not related to Grace's trade or business.Therefore,the $12,000 loss is treated as a short-term capital loss,$3,000 of which is deductible this year and $9,000 of which may be carried over to next year.

In 2016,Grace Loaned Her Friend Paula $12,000 to Invest in Various