Loan structure/tax advice with loan from family member.

Member since 2021 · 5 posts · 3 votes

My aunt is loaning me cash to buy a property. I have two years to pay her back. She's charging me 0% interest. My plan is to rent the property until I can refinance it through a bank with payments to her along the way of $200 a month and a balloon at the end when I refinance the property. Of course I can't get ahold of my cpa and my closing has already been pushed back once. I'm curious to know how the loan should be drawn up. And if/how much taxes she will owe since she isn't making money on this transaction. Only getting back what she's put in. Also what taxes fall on me other than property taxes. I'm in Ga. Likely searching for a new cpa.

1 Reply

79 views

Most Popular Reply

Ashish AcharyaBusiness Member

CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes

She has to charge you interest. If not, she has to pay imputed interest on the payment you make. You can pay interest at the end when you refi and draw up the debt agreement in such a way that you don't have to pay interest until you pay off the loan.

The taxes she owes will only be on the imputed interest/interest portion.

[email protected]941-914-7779

INVESTOR FRIENDLY CPA®4.9242 Reviews

Website View Page

TaxMD® | Tax Planning Software

Website View Page

1 Reply

See this reply in the discussion

8 Replies

Jump to latestLatest

Sort by

Ashish AcharyaBusiness Member
CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
3y
She has to charge you interest. If not, she has to pay imputed interest on the payment you make. You can pay interest at the end when you refi and draw up the debt agreement in such a way that you don't have to pay interest until you pay off the loan.

The taxes she owes will only be on the imputed interest/interest portion.
[email protected]941-914-7779
INVESTOR FRIENDLY CPA®4.9242 Reviews
Website View Page
TaxMD® | Tax Planning Software
Website View Page
1 Reply
Jesse Aaron
OP
Member since 2021 · 5 posts · 3 votes
3y
Quote from @Ashish Acharya:

She has to charge you interest. If not, she has to pay imputed interest on the payment you make. You can pay interest at the end when you refi and draw up the debt agreement in such a way that you don't have to pay interest until you pay off the loan.

The taxes she owes will only be on the imputed interest/interest portion.
So since she doesn't want to charge me interest can it be/should it be a minimal amount just to satisfy the IRS? 0.5 or 1%
0 Reply
Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
@Jesse Aaron
Check AFR is what it is called, I think right now it’s around 4% so anything less I still believe that’s what she will pay for taxes
7e investments53 Reviews
Website View Page
1 Reply
Jesse Aaron
OP
Member since 2021 · 5 posts · 3 votes
3y
Quote from @Chris Seveney:

@Jesse Aaron
Check AFR is what it is called, I think right now it’s around 4% so anything less I still believe that’s what she will pay for taxes

Thank yall so much. Yall have been a huge help.
0 Reply
Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
3y
@Jesse Aaron

Here's an explanation of the "below-market loans" rules discussed on this thread: https://www.irs.gov/publicatio... It incudes a link to the table of the current AFR rates.

The first CPA who responded to your question, @Ashish Acharya, is in Atlanta and is excellent. Contact him if you're searching for a new one. However, your complain about "Of course I can't get ahold of my cpa" shows a likely unrealistic expectation with any accountant.
We're not tech support waiting by the phone to answer questions from our clients. Consultations usually need to be scheduled, and they are not free. Here is how it works (scroll down to #7 and 8 if you don't want to read the whole post): https://www.biggerpockets.com/...
1 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
Include interest in the loan, it is a lot safer if the lender puts a lien on the property & you have a promissory note written up. It will show the IRS the loan is legit.
1 Reply
Jesse Aaron
OP
Member since 2021 · 5 posts · 3 votes
3y
Quote from @Eliott Elias:

Include interest in the loan, it is a lot safer if the lender puts a lien on the property & you have a promissory note written up. It will show the IRS the loan is legit.

Got it all taken care of. Wrote the loan up and included the interest. Everything is above board. And more importantly I gained great knowledge and resources from yall. Thank yall again for the help.
1 Reply
Eric Williams
Accountant · Houston, TX · Member since 2023 · 148 posts · 41 votes
3y
Quote from @Jesse Aaron:

My aunt is loaning me cash to buy a property. I have two years to pay her back. She's charging me 0% interest. My plan is to rent the property until I can refinance it through a bank with payments to her along the way of $200 a month and a balloon at the end when I refinance the property. Of course I can't get ahold of my cpa and my closing has already been pushed back once. I'm curious to know how the loan should be drawn up. And if/how much taxes she will owe since she isn't making money on this transaction. Only getting back what she's put in. Also what taxes fall on me other than property taxes. I'm in Ga. Likely searching for a new cpa.

How much is the loan for? There is a de minimis exception.
https://www.law.cornell.edu/uscode/text/26/7872
$10,000 de minimis exception for gift loans between individuals
(A)In general

In the case of any gift loan directly between individuals, this section shall not apply to any day on which the aggregate outstanding amount of loans between such individuals does not exceed $10,000.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.