Difficult Tax/Estate Question


R

Ron

I loaned my son $ 100,000 to start a small construction business. He
is doing well enough to take care of his family and pay me interest on
the note (9 yrs/AFR). However I doubt if he'll ever be able to pay
back any of the principal. Additionally I give him a check for the
yearly gift tax exclusion of $ 13,000. I would like to just forgive
the loan but it would come out of my lifetime gift tax exemption. Does
anyone see another solution ? I understand this is a common problem.
Thanks Ron CPA
 
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S

Seth

I loaned my son $ 100,000 to start a small construction business. He
is doing well enough to take care of his family and pay me interest on
the note (9 yrs/AFR). However I doubt if he'll ever be able to pay
back any of the principal. Additionally I give him a check for the
yearly gift tax exclusion of $ 13,000. I would like to just forgive
the loan but it would come out of my lifetime gift tax exemption. Does
anyone see another solution ? I understand this is a common problem.
If either he or you is married, the exclusion is $26,000, so you could
forgive another $13,000. (If both, you can forgive $39,000.)

Seth
 
R

removeps-groups

What if your son gave you shares in exchange for the cash you loaned
him? Then that 100k cash is not a loan, but an investment. It should
be marked as section 1244 stock, which I think is only available to C
corporations. Then you can deduct 50k/100k of the loss as an ordinary
loss.

Perhaps if the original loan of 100k was done a long time ago you can
still infuse the company with another 100k loan, which they can use to
pay off the original loan.
If either he or you is married, the exclusion is $26,000, so you could
forgive another $13,000. (If both, you can forgive $39,000.)
If both parties are married, then isn't the maximum not 39k but 52k.

Anyone know what gift tax amount will be in 2010?
 
W

Wallace

Ron said:
I loaned my son $ 100,000 to start a small construction business. He
is doing well enough to take care of his family and pay me interest on
the note (9 yrs/AFR). However I doubt if he'll ever be able to pay
back any of the principal. Additionally I give him a check for the
yearly gift tax exclusion of $ 13,000. I would like to just forgive
the loan but it would come out of my lifetime gift tax exemption. Does
anyone see another solution ? I understand this is a common problem.
Thanks Ron CPA

why does he not use the $13,000 per year to pay you back?

You could give another $13,000 per year to his wife, one of both of the
$13,000 used to pay you back.

Your wife could give him and his wife each $13,000 per year, which could
also be used to pay you back.


Or, could you forgive $13,000 in principal each year (and not give cash)?
 
S

Stuart A. Bronstein

If either he or you is married, the exclusion is $26,000, so you
could forgive another $13,000. (If both, you can forgive
$39,000.)
You mean $52,000. And that's each year. So parents could forgive
half on December 31, 2009, and the balance on January 1, 2010.
 
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S

Stuart A. Bronstein

Wallace said:
why does he not use the $13,000 per year to pay you back?
Good idea. He has to be careful, though, to leave himself the option
not to forgive any amount in any given year. If there is evidence
that a forgiveness plan is set up that locks the parent in to a
schedule, the IRS will treat it as a gift all in the year the plan
was set up.
 
W

Wallace

Stuart A. Bronstein said:
Good idea. He has to be careful, though, to leave himself the option
not to forgive any amount in any given year. If there is evidence
that a forgiveness plan is set up that locks the parent in to a
schedule, the IRS will treat it as a gift all in the year the plan
was set up.

Stu, it is comments like yours that makes MTM such a valuable resource.
Much appreciated for possible future reference. Gotta make sure all them
I's are dotted!


(hmm, my spell checker wanted to change Stu to "stud".)
 
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S

Seth

You mean $52,000.
In total, yes.

OP wrote: "Additionally I give him a check for the yearly gift tax
exclusion of $ 13,000." So I was stating the amount of loan
forgiveness still available (under the assumption that the check had
already been given this year).

Seth
 

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