I'm considering buying a property in the Mexico (Riviera Maya area) for approximately $100K. I'm looking at this property as a place I can use as a vacation property, short term rental, and a retirement location far into the future. The purchase as to be done all cash as financing in Mexico is not an option.

My parents have offered a loan of $50K for the purchase of the property in exchange for getting to use the property for X number of days during the year (specifics need to be worked out).

Questions,

My parents have offered for the loan to be interest free (they have the money in a saving account at this moment). I have been researching on line, and have come across information that indicates that the IRS has a minimum interest rate for family loans that needs to be charged.

Can I take a interest free loan from them? As anyone done this?

On the other hand. If I pay them interest on the loan ,do I get to deduct that interest when taxes are filed? I would like to pay them interest on the loan to make it a better deal for them, they are making nothing with that money in a savings account.

Hello and welcome here Rene!I hate to be the one that  tells you this, even when a property is getting financing to enable for someone to close, the existing owner still gets paid in full on that same day.  The only difference is that get a check instead of cash and that rarely makes a difference unless the Seller needs the money that same day whereas where you deposit a check may not immediately convert it to cash.  That is the only difference.  It is just an uninformed myth.

Plus, the IRS is only informed about something if you tell them.  If you prefer to make them aware of that loan, any interest is deductible on a house loan.  There might be a problem with any deductions if you are purchasing that subject property from a Mexican person or company.  If they do not have to claim that purchase. 

Even if your parents live in America you might not be able to claim any deductability paid as interest paid on an American loan but bought that property from a Mexican.

I'm afraid that you might need to talk to an experienced tax consultant that has dealt with a situation like this.  You might feel that they deserve some interest on the loan but you might not be able to deduct it.

If you do not care about it's ability to make money or an increase in value over any time.  If you are hoping to make a positive cash  flow or an increase in value, no matter how you feel will not have a positive outcome.

If you are counting on the rental money or an increase in value, I hope that it is close to amenities that would attract vacationing people or have real good sightseeing because no matter how nice you think it is will not matter to the renters.

Good luck to you!