Marge made a $60,000 interest-free loan to her son, Steve, who used the money to
ID: 2782423 • Letter: M
Question
Marge made a $60,000 interest-free loan to her son, Steve, who used the money to buy an automobile. Steve’s only sources of income were $25,000 from wages and $250 of interest on his checking account. The relevant Federal interest rate was 5%. Based on the above information:
A) Marge must recognize $250 of imputed interest income on the below market loan.
B) Marge must recognize $1,000 of imputed interest income on the below market loan.
C) Marge must recognize $3,000 of imputed interest income on the below market loan.
D) Marge is not required to impute any interest.
Explanation / Answer
Choice D) “Marge is not required to impute any interest.” Is correct
The $100,000 exception would apply. Marge is not required to recognize imputed interest income because Steve’s investment income is less than $1,000. Steve does not recognize any imputed interest expense