Individual Income Taxes
43rd Edition
ISBN: 9780357109731
Author: Hoffman
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 4, Problem 25CE
LO.4 Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans. Assume that the relevant Federal rate is 5% and that the loans were outstanding for the last six months of the year.
What are the effects of the imputed interest rules on these transactions? Compute Elizabeth’s gross income from each loan:
- a. Richard
- b. Woody
- c. Irene
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Elizabeth makes the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans.
The relevant Federal rate is 5% and that the loans were outstanding for the last six months of the year.
Borrower's Net
Borrower Amount
Investment Income Purpose of Loan
Richard
$5,000
$800
Gift
Woody
$8,000
$600
Stock purchase
Irene
$105,000
$0
Purchase principal residence
By how much do each of these loans increase Elizabeth's gross income?
If an amount is zero, enter "0".
a. Richard is not
subject to the imputed interest rules because the $10,000 gift loan exception does
apply. Elizabeth's
gross income from the loan is $
0
b. The $10,000 exception does not
income producing
apply to the loan to Woody because the proceeds were used to purchase
assets. Although the $100,000 exception applies
to this loan, the amount of imputed interest is
1,000 X.Incorrect
is $
0 ✓.
c. None of the exceptions apply
gross income from the loan is $
to the loan to…
Judy Martinez, owner of Judy's Fashions,received a $12,000 tax refund. She depositedthe money in Chase Bank. The terms of theagreement are that she must leave the moneyon deposit for three years and the bank will payher 1 percent interest. Her account is aa. line of credit.b. certificate of deposit.c. checking account.d. commercial paper agreement.e. savings account.
Assume that Louisa carried an average balance of $1,000 from her credit card purchases over the past year. The A.P.R. on her credit card for the past year was 19.99%. Approximately how much interest would Louisa have paid over the course of the year?
She would have paid interest charges of $2,000.
She would have paid interest charges of $20.
The credit card company would have paid Louisa $20.
She would have paid interest charges of $200.
Chapter 4 Solutions
Individual Income Taxes
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