How Should I Give A Loan to My Son to Avoid Tax Problems?
Full Question:
We are about to loan our son $5000 for a down payment on a property in Kingston, OH (Ross county) We want to use a promissory note for the loan. We don't want to charge him interest. We simply want him to pay us back in monthly payments of $100 until paid. I have read that this may present a problem with the IRS. Is there a way around this?
06/30/2009 |
Category: Debts and Cr... ยป Promissory N... |
State: Ohio |
#17258
Answer:
It is recommended to use a promissory note when making a loan to a family member so that it's note construed as a gift by the IRS.
It is typically recommended to include an interest rate as well. The $5,000 amount involved shouldn't raise a gift tax issue, since the current federal annual exclusion is $13,000 for individual gifts or $26,000 for gifts by spouses. However, the gift tax will not apply until you give away $1,000,000 in your lifetime.
