Question

Ridge is a generous individual. During the year, he made interest-free loans to various family members when the Federal interest rate was 3%. What are the Federal tax consequences of the following loans by Ridge?
a. On June 30, Ridge loaned $12,000 to his cousin, Jim, to buy a used truck. Jim's only source of income was his wages on various construction jobs during the year.
b. On August 1, Ridge loaned $8,000 to his niece, Sonja. The loan was meant to enable her to pay her college tuition. Sonja reported $1,200 interest income from CDs that her parents had given her.
c. On September 1, Ridge loaned $25,000 to his brother, Al, to start a business. Al reported only $220 of dividends and interest for the year.
d. On September 30, Ridge loaned $150,000 to his mother so that she could enter a nursing home. His mother's only income was $9,000 in Social Security benefits and
$500 interest income received.


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  • CreatedMay 25, 2015
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