Loans to Relatives
This may be off the general topics but I want to loan money to my son. I understand that loans within family are a sticky business as far as the IRS is concerned. I want to charge him zero interest or very little. Is it true I can loan at a given interest and then forgive that loan interest at the end of the year if we have a written agreement? Are there limits to the amount I can give or loan without huge tax liabilities?
Permalink Submitted by Steven Gallo on Fri, 2007-10-12 13:52
The isssue with the loan to your son without interest is that the IRS could deem the loan a gift and if the loan is greater than $12k gift tax could apply.
Permalink Submitted by Al Fry on Sun, 2007-10-14 20:48
A better approach is probably to make the loan bona fide by using a pomissory note and charging appropriate interest. Gifts could also be used but should not be promised or at all related to the loan interest.