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Answered 2006-12-08 19:33:48

While you are addressing this as a personal matter (between friends), rather than a formal business one, I'm not sure that any real division in the tax rules could be made. Its really more a business transaction between friends. As such: Loans/Borrowings are NOT taxable to you as the recipient. You exchange your promise to repay for the sum received. Your actually worth no more after receiving the loan than before. The increase in your cash assets is offset by the increase in your liabilty to repay. So, if a bank gives you a loan for any reason, say to buy a car or hosue, that isn't income when received. You have an increased liability to repay it. However, if the amount is just given to you, or a loan that you then fail to repay or is cancelled (essentially becoming the same as being given to you), YES that is income to you and reportable as such. So if you don't repay the loan from the bank mentioned above, (and you can see how that is basically enriching yourself at their expense, similar to stealing), the amount you 'get away' with is income. (Similarly, money you get from robbing a bank is taxble income). The givor may have a bad debt deduction, or casualty loss, or business expense. I say may because there would have to be several qualifications reached for that to be true, including that it was undertaken as a business (for profit motive), by the givor, etc.

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