On December 31, 2019, Mrs. Danielle Lafarge gives corporate bonds to her husband in exchange for a note with a face value of $131,000. The corporate bonds have an adjusted cost base of $119,000 and a fair market value of $131,000. The note from her husband does not pay interest and has no specific maturity date. Mrs. Lafarge does not report a gain or loss on these bonds in 2019.
During 2020, the bonds pay interest to Mr. Lafarge in the amount of $5,600. On October 1, 2020, immediately after an interest payment, Mr. Lafarge sells the bonds for $134,000. He uses $131,000 of the proceeds to pay off the loan owing to his wife. What are the tax consequences for Mr. and Mrs. Lafarge in each of the years 2019 and 2020?

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The Answer of On December 31, 2019, Mrs. Danielle Lafarge gives corporate bonds to her husband in exchange for a note with a face value of $131,000. The corporate bonds have an adjusted cost base of $119,000 and a fair market value of $131,000. The note from her husband does not pay interest and has no specific maturity date. Mrs. Lafarge does not report a gain or loss on these bonds in 2019.
During 2020, the bonds pay interest to Mr. Lafarge in the amount of $5,600. On October 1, 2020, immediately after an interest payment, Mr. Lafarge sells the bonds for $134,000. He uses $131,000 of the proceeds to pay off the loan owing to his wife. What are the tax consequences for Mr. and Mrs. Lafarge in each of the years 2019 and 2020?