In 2014 Betty loaned her son,Juan,$10,000 to help him buy a car.In 2016,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

When Betty forgave the debt in 2016, it counted as a gift to Juan. The gift tax exclusion amount for 2016 was $14,000, meaning that Betty's forgiveness would fall within this amount and be considered an excludable gift. Therefore, the amount forgiven should not be treated as taxable income for Juan in either the year of the loan or the year of forgiveness.

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