On January 1,Father (Dave)loaned Daughter (Debra)$100,000 to purchase a new car.There were no other loans outstanding between Dave and Debra.The relevant Federal rate on interest was 6 percent.The loan was outstanding for the entire year.

Question

Quizplus · Accepted Answer

According to the tax law, when a loan is made between family members or friends with no stated interest rate or a rate below the Applicable Federal Rate (AFR), the IRS may consider interest to have been paid, and impute or assign interest income to the lender. The AFR for January 1 was 6 percent. Therefore, if Debra had not paid any interest on the loan, the imputed interest income for Dave would be $6,000 ($100,000 * 6%). However, Debra had some investment income during the year. The tax law stipulates that the borrower's investment income should be considered before imputing interest income to the lender. In this case, Debra had $15,000 of investment income. Thus, the imputed interest income for Dave would be $6,090 [($100,000 - $15,000) * 6%]. Therefore, the correct answer is A.

On January 1,Father (Dave)loaned Daughter (Debra)$100,000 to Purchase a New