Samantha and her son,Brent,are cash basis taxpayers.Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000.On the date of the gift,March 31,2014,the accrued interest on the bond was $100.On December 31,2014,Brent collected $400 interest on the bond.Brent must include in gross income the $300 interest earned after the date of the gift.

Question

Quizplus · Accepted Answer

The interest accrued at the date of the gift becomes gross income to the cash basis donor when the interest is collected by the donee.Thus,Samantha is taxed on $100 and Brent is taxed on $300 of interest that was earned and collected after he owned the bond (between March 31 and December 31).

Samantha and Her Son,Brent,are Cash Basis Taxpayers