Chana made a $75,000 interest-free loan to her son, Trey, who used the money to retire a mortgage on his personal residence. Trey's only source of income was salary of $50,000 and $940 interest income on a savings account. The relevant Federal interest rate was 5% and the loan was outstanding all year long. What amount must Chana include as interest income as a result of this transaction?A) $3,750
B) $940
C) $2,810
D) $0

D) $0

Explanation:

Family loan of $100,000 or less, the amount of the imputed interest income is the lesser of the computed imputed interest

$75,000 × .05 = $3,750

or make use of Trey's net investment income of $940,However, since the net investment income $940 is less than $1,000, the imputed interest may be ignored; so, Chana will not include any amount as interest income as a result of this transaction.

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