Chana made a $75,000 interest-free loan to her son, Trey, who used the money to retire a mortgage on his personal residence. Trey's only source of income was salary of $50,000 and $940 interest income on a savings account. The relevant Federal interest rate was 5% and the loan was outstanding all year long. What amount must Chana include as interest income as a result of this transaction? A) $3,750

B) $940

C) $2,810

D) $0

Question

Barclay

Business

14 October, 06:26

Chana made a $75,000 interest-free loan to her son, Trey, who used the money to retire a mortgage on his personal residence. Trey's only source of income was salary of $50,000 and $940 interest income on a savings account. The relevant Federal interest rate was 5% and the loan was outstanding all year long. What amount must Chana include as interest income as a result of this transaction? A) $3,750

B) $940

C) $2,810

D) $0

+3

Answers (1)

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Barry · Answer 1

D) $0

Explanation:

Family loan of $100,000 or less, the amount of the imputed interest income is the lesser of the computed imputed interest

$75,000 *.05 = $3,750

or make use of Trey's net investment income of $940, However, since the net investment income $940 is less than $1,000, the imputed interest may be ignored; so, Chana will not include any amount as interest income as a result of this transaction.