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a. Todd's business net profit will be reducod by $3,000 (0S x $60,000) of interest expense.
b. Sharon must recognize $3,000 (0.05 x $60,000) of imputed interest income on the below- market loan.
c. Todd's gross income must be increased by the $3,000 (05 × $60.000) imputed interest income on the below market loan.
d. Sharon does not recognize any imputed interest income and Todd does not recognize any imputed interest expense.
e. None of the above is correet.

1 Answer

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Answer:

b. Sharon must recognize $3,000 (0.05 x $60,000) of imputed interest income on the below- market loan.

Explanation:

When a family member makes an interest free loan, the IRS will calculate imputed interest, and that is generally considered a gift. When someone makes a gift, they are responsible for paying any applicable taxes.

In this case, Sharon will have to pay gift taxed for the imputed interest resulting form the loan.

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Halie Wiza MD
15.5k 3 10 26
answered 10 months ago