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I thank both gentleman for their responses. The debt has not been "cancelled", but rather, the donor is "allowing payment" of one year's principal and interest via an annual gift of $10K and which there is a remaining balance for the following year. Although money is not actually going back and forth (or should it?), the loan debt is being calculated as if it did. If the lender has to report income, would not the borrower then be able to report an investment expense?
Is it at all possible that through the gift, neither income to the lender and/or investment expense to the borrower would not be a taxable issue?
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