In 2012 Betty loaned her son,Juan,$10,000 to help him buy a car.In 2013,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 forgiven amount of the loan is treated as a gift and can be excluded from Juan's income in the year of forgiveness. Betty's cancellation of the debt is considered a gift as there was no exchange of goods or services. As a result, Juan should treat the amount forgiven as an excludable gift in the year of forgiveness.

In 2012 Betty Loaned Her Son,Juan,$10,000 to Help Him Buy