@Caldubs individuals who make a below-market gift or demand loan generally must report as interest income any forgone interest from that loan (IRC SEC 7872)
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Forgone interest is the amount of interest that would be payable for that period if the loan's interest accrued at the applicable federal rate (AFR) and was paid annually on 12/31 of that year minus any interest actually payable for that period.
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A gift loan is any below market (interest rate) loan where the forgone interest is in the nature of a gift. A demand loan is payable in full at any time upon the lender's demand. The borrower is treated as paying the forgone interest to the lender and the lender is treated as gifting the interest back to the borrower.
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there is this exception to reporting the forgone interest/OID
loans between individuals of up to $100K if the borrower's net investment income is under $1000
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applicable federal rate (AFR)
https://www.irs.gov/applicable-federal-rates
for gift and demand loans use the short-term AFR in effect for each semi-annual period. (for example, if the loan was made in February, you would use the Feb and Aug short-term AFR rate each semiannual period until the loan is paid or the exception is met
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