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Page 4 of 63 |
What are the tax consequences to me (or the recipient) of forgiving a loan to a family member 5 years after the loan was made? |
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The person whose debt is forgiven has taxable income in the amount of the debt unless the forgiveness was a gift. If the forgiveness is a gift, there is not income tax liability.
The person who forgives the debt gets no deduction if the debt was not a business debt, or if the forgiveness is a gift rather than a business write off. There is no gift tax because the debt was only $12,000 (increased in 2006) and there is an annual exclusion from the gift tax of that amount.
Since your situation has to do with a family member, the forgiveness is probably a gift and there are no tax consequences to anyone.
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