Taxes for borrowing private money?

2 Replies

So I have been in talks with someone to get private money.  I have gone through purchasing the PPI and giving up 10% of the purchase price as security, as per the contract.  Now the lender is telling me that there is a tax due based on the IRS AFR from March table (not Septemeber/October??) of 6.48% due before he can release the loan.  Why would a borrower be paying taxes on a loan unless it were a gift?  As far as I can tell AFR doesn't even come into the equation since he is charging 7% in interest.  Can anybody explain to me why this would be and if it is normal when dealing with private money?  Thanks.

Originally posted by @Sean Waits :

So I have been in talks with someone to get private money.  I have gone through purchasing the PPI and giving up 10% of the purchase price as security, as per the contract.  Now the lender is telling me that there is a tax due based on the IRS AFR from March table (not Septemeber/October??) of 6.48% due before he can release the loan.  Why would a borrower be paying taxes on a loan unless it were a gift?  As far as I can tell AFR doesn't even come into the equation since he is charging 7% in interest.  Can anybody explain to me why this would be and if it is normal when dealing with private money?  Thanks.

 Borrowed money is NOT taxed. You are most likely being scammed. 

Your comment: "giving up 10% of the purchase price as security, as per the contract." sounds fishy. What dos that even mean?Are they lending money or are they doing a Joint Venture. Something doesn't add up.

@Sean Waits I don’t see how the IRS AFR even applies based on what you wrote. Not sure where the 6.48% comes from either, but if the “private lender” is saying you have to pay that up front as a tax before he can release your loan funds I can pretty much guarantee you're being scammed.