USA Parent lending me money

[Alex Yang]

My dad would like to lend me $100,000 for my first house, he will be transferring from his Morgan Stanley account to my Bank of America.

I read on http://blog.taxact.com/family-loans-does-the-irs-care-if-i-lend-my-kids-money/ that: "You lend a child $100,000 or less, and the child’s net investment income is not more than $1,000 for the year". I do not have any kind of investment income as of now. So do I qualify for this? Will me or my dad be taxed?

Follow up question: Does it make a difference if my dad resides overseas (Singapore) and his Morgan Stanley Stock account has an overseas address?

I live in California. Thanks!

 

[Houston Tax Attorney]

The rule you are citing relates to imputed interest and can be found in Sec. 7872. It is intended to prevent a high-tax-bracket parent from shifting an investment (or cash to buy an investment) to a low-tax-bracket child--with the intent of having the child report the income from the investment on the child's tax return. If the loan amount is over $100K, the parent has to pick up the interest as income on their income tax return. If the interest is large enough, it would trigger a gift tax for the interest for your parent too. This particular rule wouldn't apply if you are taking about buying a personal residence with the funds, not an investment.

From the U.S. side, there are few restrictions on transferring money into the U.S. Taking money out of the U.S. is a different story....

 

[Alex Yang]

I see. Thanks a lot Houston Tax Attorney! I appreciate it!

 

[Tyson]

Also something to keep in mind, in the US, any loan amounts between family members of $10,000 or greater need to have interest charged at the applicable federal rate or higher.

 

[Alex Yang]

@Tyson Yikes, that might be an issue. Do you have a source on that? Federal.. This means all states are affected right?

 

[Tyson]

Yes all states. Here you go: http://www.investopedia.com/terms/a/applicablefederalrate.asp

Current AFR for long-term loans is approaching 3%: https://www.irs.gov/pub/irs-drop/rr-17-04.pdf