Question

Samantha and her son, Brent, are cash basis taxpayers. Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000. On the date of the gift, March 31, 2015, the accrued interest on the bond was $100. On December 31, 2015, Brent collected $400 interest on the bond. Brent must include in gross income the interest earned after the date of the gift. How much interest must Brent include in his gross income?

Answer 1

Brent must include $400 in his gross income, which represents the interest earned from the corporate bond after the date he received it as a gift from his mother, Samantha.

Step-by-step explanation:

The student's question relates to how much interest income Brent must include in his gross income for the year 2015 from the corporate bond he received as a gift. As Samantha and her son Brent are cash basis taxpayers, Brent must include only the interest earned after the date of the gift in his gross income.

In this case, the interest earned after the date of gift, which is from March 31 to December 31, amounts to $400. Since the accrued interest of $100 on the date of the gift is not considered income received by Brent (it is considered to have been received by Samantha), Brent should only include the $400 he collected on December 31, 2015, which is the interest earned for the period after he received the bond as a gift.