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Jim and Sally are relatives. Jim loans Sally $12,000 to buy a new car. After Sally has paid back $2,000, Jim decides to forgive the rest of the loan and let Sally enjoy her car. What are the tax consequences to Sally? What about to Jim? What if Jim’s loan had been $25,000 instead of $12,000 and Sally hadn’t repaid a dime before Jim decided to forgive the balance?

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Accounting Basics, Accounting

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