Elaine Loaned Her Brother, Mike, $175,000 to Purchase a New

question 59

Multiple Choice

Elaine loaned her brother, Mike, $175,000 to purchase a new home. Elaine does not charge Mike any interest on the loan. What are the tax consequences to Elaine and Mike?

• A) If Mike has no net investment income, Elaine does not have to treat the forgone interest as a gift.
• B) Elaine is treated as having made a gift of the forgone interest on the $175,000 loan to Mike.
• C) Elaine only has to impute interest on $75,000 of the loan to Mike.
• D) Mike can deduct the interest that he is deemed to have paid Elaine.

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