What defines a gift loan?

A gift loan is defined by the scenario where a loan is provided at an interest rate that is below the market rate. In this situation, the difference between the interest that would have been charged at market rates and the lower rate offered essentially represents "forgone interest," which the Internal Revenue Service (IRS) considers to be a gift. This characterization is crucial for tax purposes, as the IRS has specific guidelines regarding the taxation of gifts and the implications of the imputed interest that can arise from such transactions.

For instance, if a friend loans you money at an interest rate of 2% when the market rate is 5%, the 3% difference may be viewed as a gift. This is relevant for both the lender and the borrower in terms of their tax responsibilities and reporting obligations.

The other options describe various types of loans, but they do not align with the definition of a gift loan. For example, a market-rate loan, regardless of who provides it, doesn't imply a gift because the lender is receiving fair compensation for the loaning of money. A loan secured by real estate refers to a specific type of collateralized borrowing, which does not have the same implications as a gift loan. Lastly, a loan that is forgiven outright may have