A few years ago I let my friend borrow 40k for a real estate project.
A good portion of those funds are being returned to me this year.
Is there anything I need to do specifically with the IRS to avoid paying taxes again on these funds?
If it was in fact a loan then it's simply a return of the loaned funds which would not typically be taxable (just a return of after tax dollars).
What were the interest terms on the loan? Any interest received will be taxable.
The loan was a fixed 8% interest which has been returned over the last few years on a monthly basis that I have paid my tax on.
If it is a return on loan, is it up to my friend to deduct those payments as loan return with the IRS or I'm wondering how the IRS would know it is a return of loan?
@Ivan Souvorov There is no “deduction” on his end, or tax liability on your end, for the “return of principal”....only the interest paid is deductible for him and taxable for you.