In 2017 Betty loaned her son,Juan,$10,000 to help him buy a car.In 2019,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 should be treated as an excludible gift in the year of forgiveness. According to the IRS, a gift is "any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return." In this case, Juan did not receive full consideration in return for the forgiveness of the loan. As a result, the forgiven amount is considered a gift and can be excluded from taxable income up to the annual gift tax exclusion amount (which was $15,000 in 2019).

In 2017 Betty Loaned Her Son,Juan,$10,000 to Help Him Buy