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, 2017, the accrued interest on the bond was $100. On December 31, 2017, 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

As a cash basis taxpayer, Brent must include in gross income any interest earned after the date of the gift, which in this case is $300 ($400 - $100 accrued interest at the time of gift). The face amount of the bond and its fair market value are not relevant for determining Brent's taxable income from the gift.

Samantha and Her Son, Brent, Are Cash Basis Taxpayers