Alright so lets try this again from an income stand point. A tax payer loans his son-in-law some money. The son-in-law is now refinancing the loan to take advantage of the lowering rates. he's got $100,000 in principal and $25,000 of accrued interest. He takes the new loan out for $125,000. Is this accrued interest considered paid to his father-in-law? What if the refinanced loan is also with his father-in-law?