Family Loan Settlement

[Mike029]

I loaned over six figures to a family member about a decade ago.  The loan was interest-free.  After a few payments, all attempts to repay the loan stopped.  Sued the family member and will receive a settlement for the full amount. 

Can anyone tell me the tax ramifications of the settlement?   Apparently, there can be an imputed interest rate where the interest income is what I would have earned on the loan.

Any help will be appreciated. 

[tagteam]

---

@Mike029 wrote:

Apparently, there can be an imputed interest rate where the interest income is what I would have earned on the loan.

---

Yes. You can look up the applicable federal rates at the site below.

https://www.irs.gov/applicable-federal-rates

Consult, in-person, with a local tax professional. Part of your recovery may be imputed interest.

[Mike029]

Thank you.

[Hal_Al]

More info on "imputed interest":

https://www.investopedia.com/terms/i/imputedinterest.asp#:~:text=Imputed%20interest%20is%20a%20term,....