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 31,2015,the accrued interest on the bond was $100.On December 31,2015,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

Because Samantha and Brent are cash basis taxpayers, Brent must include in gross income any interest earned on the bond after the date of the gift, which in this case is $300 ($400 collected on December 31,2015 minus $100 accrued on March 31, 2015). The face amount and fair market value of the bond are not relevant for determining taxable income.

Samantha and Her Son,Brent,are Cash Basis Taxpayers