Approximately 2 years ago, we (my wife and I) made a family loan to my son/his wife when they purchased their home. We drew up an agreement and have an amortization spreadsheet that lists each monthly payment (and how much of his payments go towards the principal and how much towards interest). Loan interest rate is based on the IRS Applicable Federal Rate at the time of the loan. We have been claiming the interest amount that he pays us on our income tax each year. We want to forgive a small portion of the loan. For example purposes, assume the initial principal amount of the loan was $400,000, and his payments are $3000 per month and assume for each of these payments, $2000 goes towards principal and $1000 goes towards interest (using round number for discussion purposes). We want to forgive 3 payments ($9000 total with $6000 that would go to principal and $3000 to interest). When we submit our taxes for 2025, can we simply claim $9000 in loan interest for 2025 ($12000 minus the $3000 forgiven interest)? The modified $9000 would appear as a line item in Part I, Schedule B, Form 1040 as Interest and Ordinary Dividends? Thanks for your assistance.
