On January 1, 2019, Marge made a $80,000 interest-free loan to her son, Steve, who used the money to start a new business. Marges sources of income in 2019 were salary of $100,000 and interest income of $4,000 from bonds she owns. Steves only sources of income in 2019 were $50,000 from the business and $500 of interest on his checking account. The relevant Federal interest rate was 3%. The full amount of the loan was outstanding at the end of the year. Calculate the effect of the loan on the 2019 taxable income of both the borrower and lender. Consider only the effect of imputed interest from the loan, if any.

(1 point) What is the effect of the loan on Marges 2019 taxable income?

1. $0
2. $500 increase
3. $2,400 increase
4. None of the above

(1 point) What is the effect of the loan on Steves 2019 taxable income?

1. $0
2. $500 decrease
3. $2,400 decrease
4. None of the above

(1 point) If the amount of the loan is $150,000 instead of $80,000, what is the effect of the loan on Marges 2019 taxable income?

1. $0
2. $500 increase
3. $4,500 increase
4. None of the above

(1 point) If the amount of the loan is $150,000 instead of $80,000, what is the effect of the loan on Steves 2019 taxable income?

1. $0
2. $500 decrease
3. $4,500 decrease
4. None of the above