Tax Guru – Ker$tetter Letter

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Gift Or Loan?

Posted by taxguru on February 5, 2006

Q:

Subject: Gift Tax Question
 
Thank you for the important information. 
 
If I am giving a child a loan between them and ourselves, expecting them to pay us back in a timely fashion, and if I have already given them the max of $11,000, that is not considered gift tax is it?  Does this amount, maybe around $5,000, need to be reported on our income tax as something?  Thank you for your input. 

 

A:

Loans and gifts are two completely different things.  A gift has no requirement to be repaid. 

A loan has no dollar limit and the repayment terms are negotiable between you and your child.  Loans are not taxable deductible by you or taxable income to the borrower.  The only thing you will need to report on your tax return is the interest income you receive.

A loan can be reclassified as a gift if you forgive all or part of the balance. 

Your personal professional tax advisor should be able to give you more useful information based on your unique situation.

Good luck.

Kerry Kerstetter

 

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