In 2014 Betty loaned her son,Juan,$10,000 to help him buy a car.In 2015,before he repaid the $10,000,Betty told Juan that she was "tearing up" the $10,000 note as a graduation present.How should Juan treat the amount forgiven?

Question

Quizplus · Accepted Answer

The amount forgiven should be treated as an excludable gift in the year of forgiveness. Since Betty explicitly told Juan that she was forgiving the loan as a graduation present, it can be considered a gift. However, if she had not specified that it was a gift and simply stopped asking for repayment, it may have been considered taxable income in the year of forgiveness.

In 2014 Betty Loaned Her Son,Juan,$10,000 to Help Him Buy