loan to family members


J

john

My wife and I transferred $400,000 to my parents' stock
account last year. In order to avoid gift tax, the transfer
was made in the form of loan without interest rather than
gift. Their stock account has not been profitable since
last year

According to $100,000 rule, no imputed interest will be
accessed.
(my wife loan to my dad $100,000,
my wife loan to my mom $100,000,
myself loan to my dad $100,000,
myself loan to my mom $100,000)

Is my assumption correct? Are there any other tax
consequences?

Thanks in advance.
 
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A

A.G. Kalman

john said:
My wife and I transferred $400,000 to my parents' stock
account last year. In order to avoid gift tax, the transfer
was made in the form of loan without interest rather than
gift. Their stock account has not been profitable since
last year

According to $100,000 rule, no imputed interest will be
accessed.
(my wife loan to my dad $100,000,
my wife loan to my mom $100,000,
myself loan to my dad $100,000,
myself loan to my mom $100,000)

Is my assumption correct? Are there any other tax
consequences?

Thanks in advance.
Looks like the barn door is already open!

Yes there are consequences. The $100,000 rule applies to
lending a family member money to buy a home or start a
business. That appears not to be the case here. Even in
those cases there is a limit based on the borrower's net
investment income. Assuming you handled this in a business
like manner (a bona-fide loan), you would have imputed
interest. If not handled in a business like manner, you may
have made a gift that requires a Gift Tax Return to be
filed.

Given the complexity of the imputed interest rules, you
should have discussed this with a professional. You need to
do that immediately to see what can be salvaged.
 
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S

Stuart O. Bronstein

My wife and I transferred $400,000 to my parents' stock
account last year. In order to avoid gift tax, the transfer
was made in the form of loan without interest rather than
gift. Their stock account has not been profitable since
last year

According to $100,000 rule, no imputed interest will be
accessed.
(my wife loan to my dad $100,000,
my wife loan to my mom $100,000,
myself loan to my dad $100,000,
myself loan to my mom $100,000)

Is my assumption correct?
Yes. But if you don't live in a community property state,
you probably should have filed a gift tax return electing to
split the gift between you and your wife.

Stu
 

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