Lending $50 k to relative and collecting interest

Forum|Forum|2 years ago
October 9, 2023
3 replies
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I would like to lend about $50,000 to a relative. I would get it back within a year. I do not want this to be subject to gift tax, so I would like to collect some interest. I already discussed the terms with the borrower. It will be a bank transfer to the borrower and also bank transfer of interest (monthly) and the principal back to me. I understand that the bank will report this amount to the IRS. When time comes to file my tax, what do I need to prepare for using TurboTax Deluxe? Thanks.

Anonymous_

Employee

You need to use the market rate for the interest rate or the AFR.

See https://www.irs.gov/applicable-federal-rates

Mike9241

what will the bank be reporting to the iRS? If it's not making the loan, the funds are coming from you correct?, then the repayments including interest would be from your relative, so I don't see a reason for it to issue you a 1099-INT

however, what it may be reporting is the transfer of money.

in any case $50K would not be subject to gift reporting if it is to be repaid. short-term afr is the minimum interest rate for short-term loan. you can always charge a higher rate.

ScottiedogAuthor

Thank you for your reply. What is the definition of the short term? My situation is 6 months to maybe 8 months and it may crossover tax year (e.g. loan starts in 2023 but repaid in 2024). And when IRS sees the transfer report, they may compare against my filing and there will be no 1099 INT form to be supplied because it's a personal loan. That's why I'm bit worry about how to manage it in TurboTax and filing correctly. Thanks again.