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What are the effects of the imputed interest rules

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Problem - 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.

Borrower

Amount

Borrower's Net Investment Income

Purpose of Loan

Richard

$5,000

$800

Gift

Woody

8,000

600

Purchase stock

Irene

105,000

-0-

Purchase residence

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

Reference no: EM132655389

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