By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Planning Attorney
The value of property acquired by gift or inheritance is excludable from gross income under IRC Section 102(a). If there is a discharge of debt then under the tax code the discharge of debt is also potentially excludable from taxable gross income under the lifetime tax gifts exclusion.
A discharge of debt is considered to be a gift if it is motivated by a detached and disinterested generosity. Accordingly, a discharge of debt by a family member or friend generally is excludable as a gift. However, the discharge of a business debt generally is not considered a gift. There won’t be any income tax liability when dad forgives his son’s debt – it’s a gift and excludable from gross income per IRC Section 102.
To discuss your NJ Estate Planning matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at email@example.com. Please ask us about our video conferencing consultations if you are unable to come to our office.