Under imputed interest rules, which statement about loans greater than $10,000 and less than $100,000 is correct?

The statement regarding imputed interest where it cannot exceed the borrower's net investment income is accurate and reflects the IRS regulations concerning loans between individuals. When a loan exceeds $10,000 but is less than $100,000, the imputed interest—calculated using the applicable federal rate (AFR)—is limited to the net investment income the borrower earns in that year. This rule aims to prevent tax avoidance through interest-free loans and ensures that any kind of imputed interest is reflective of the actual economic benefit derived from the loan.

In scenarios where a borrower's net investment income is less than the imputed interest calculated, only the amount of net investment income will be subjected to taxation, thus providing a measure of protection for the borrower against excessive tax implications. This principle underscores the IRS's approach to balance taxation fairly while disallowing the benefit of loans as a method of deferring tax liabilities through artificially low-interest arrangements.

The other options do not accurately capture the essence of how imputed interest rules operate with regard to loans falling within this range. For example, gift loans between individuals typically have different treatment, especially those below $10,000, which are not subject to imputed interest at all. Understanding these nuances is critical in tax planning