Final answer:
The money Sam borrowed for an automobile down payment is not considered taxable income for Federal income tax purposes, and typically, individuals cannot deduct interest paid on personal auto loans. Business loans, or more specifically mortgage interest, may provide a tax deduction if itemized appropriately. Corporate income tax is influenced by the interest expense recorded by firms receiving loans.
Step-by-step explanation:
The amounts Sam borrowed from a bank to make a down payment on an automobile would be treated differently for Federal income tax purposes. If we're looking specifically at the individual borrowing perspective, the borrowed money itself is not considered income, and therefore it isn't taxable. However, the interest paid on the loan for the automobile is not deductible for personal loans. Only in certain cases like student loans or mortgage interest are deductions allowed.
For example, consider Ben who bought a house for $100,000. He put 20% down, which is $20,000, and borrowed the remaining $80,000. As he pays off the loan, any interest he pays on that mortgage may be deductible because it's home mortgage interest, assuming he itemizes his deductions. Whereas with Sam, there would generally be no tax deduction for interest on an auto loan.
It's worth mentioning that when a firm receives a loan, they treat the amount received as a liability, and the interest expense as a reduction of their profits, influencing their corporate income tax.