Jennifer made interest-free gift loans to each of her four children as follows: John borrowed $9,500 to purchase an automobile.His net investment income is $1,500.
Rick borrowed $50,000 to purchase a trailer.His net investment income is $900.
Bert borrowed $25,000 to purchase stock.His net investment income is $1,200.
Elizabeth borrowed $110,000 to purchase a home.Her net investment income is $800.
Assuming a 5% interest rate,on which loans must interest be imputed?

Question

Quizplus · Accepted Answer

The loans to Bert and Elizabeth must have imputed interest because their net investment income exceeds $1,000, which is more than the $950 threshold for 2019. John and Rick's net investment income is lower than $1,000, so their loans are not subject to the imputed interest rules. The loan to Rick alone is not subject to the imputed interest rules since his net investment income does not exceed the threshold, but Bert and Elizabeth's loan is subject to the rules because their combined net investment income does exceed the threshold. Therefore, the answer is B.

Jennifer Made Interest-Free Gift Loans to Each of Her Four