In short
When a loan between related parties, such as family members, an employer and employee, or a corporation and shareholder, charges little or no interest, interest is imputed at the applicable federal rate.
Key takeaways
- The lender reports the imputed interest as income; the forgone interest is also treated as a gift, compensation or dividend.
- Loans of $10,000 or less are generally exempt.
- For gift loans of $100,000 or less, imputed interest is limited to the borrower's net investment income, and is zero if that is $1,000 or less.
Where it's tested
REG: Individual Taxation: Gross Income — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Which of the following items is included in a taxpayer's federal gross income?