Chana made a $75,000 interest- free loan to her son, Trey, who used the money to retire a mortgage on his personal residence. Trey's only source of income was salary of $50,000 and $940 interest income on a savings account. The relevant Federal interest rate was 5% and the loan was outstanding all year long. What amount must Chana include as interest income as a result of this transaction?

Question

Quizplus · Accepted Answer

Under the IRS rules for interest-free loans, if the borrower's net investment income is $1,000 or less, the lender does not have to report any imputed interest income. Since Trey's interest income is $940, which is less than $1,000, Chana does not have to include any interest income.

Chana Made a $75,000 Interest- Free Loan to Her Son