short-term loan from relative


N

nonsense

Suppose a relative lends me $20,000, and I pay it back interest-free
in a few weeks. Would this violate the $12,000 gift allowance
permitted by the IRS? What would I have to do to make it all official?
 
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A

Arthur Kamlet

Suppose a relative lends me $20,000, and I pay it back interest-free
in a few weeks. Would this violate the $12,000 gift allowance
permitted by the IRS? What would I have to do to make it all official?
First, the gift allowance is now 13,000 not 12,000.

There is a de minimus amount of loan principal of $10,000, which allows
you all to ignore the issue of interest altogether.

"De minimus" is a term meaning, more or less, too small to worry about.

But this is 20,000, so unless it can be split across years or
there are two of you receiving or giving gifts of 10,000 each,
you would not qualify for the de minimus rule. That rule is
summarized in IRS Publication 550 page 13.

So instead, I refer you to IRS Publication 525 page 31, Below-market
Loans, where the interest only appears to be a loan at the applicable
federal rate, which the lender must recognize as interest and report
as taxable income, and the interest only would be treated as a gift.

In general a loan is not taxable income nor a taxable gift unless the
borrower defaults.

And a gift to another person is not taxable to the recipient and is
not deductible by the giver.
 
D

Dan Lanciani

| In article <[email protected]m>,
| >Suppose a relative lends me $20,000, and I pay it back interest-free
| >in a few weeks. Would this violate the $12,000 gift allowance
| >permitted by the IRS? What would I have to do to make it all official?
|
| First, the gift allowance is now 13,000 not 12,000.
|
| There is a de minimus amount of loan principal of $10,000, which allows
| you all to ignore the issue of interest altogether.
|
| "De minimus" is a term meaning, more or less, too small to worry about.
|
| But this is 20,000, so unless it can be split across years or
| there are two of you receiving or giving gifts of 10,000 each,
| you would not qualify for the de minimus rule. That rule is
| summarized in IRS Publication 550 page 13.
|
| So instead, I refer you to IRS Publication 525 page 31, Below-market
| Loans, where the interest only appears to be a loan at the applicable
| federal rate, which the lender must recognize as interest and report
| as taxable income, and the interest only would be treated as a gift.

Wasn't there another rule for loans under $100,000 between relatives
that limited the imputed interest that had to be recognized as income
by the lender to the the investment income of the borrower? That's
too complicated for me to have imagined but maybe there were more
conditions and/or it went away. :)

Dan Lanciani
[email protected]*com
 
K

Katie

To save Lotax the trouble (and with all due respect to Arthur), I will
note that the spelling above is incorrect.

"De minimis is a Latin expression meaning about minimal things" (Wikipedia)

-Mark Bole
"De minimis non curat lex" is the entire expression. Word for word,
it translates, more or less, as "of the least not cares law." Or, as
more commonly translated, "The law does not concern itself with
trifles." Black's Law Dictionary.

The spelling issue arises because Latin, unlike English, is an
inflected language, i.e., the case or form of a noun changes depending
on how it is used. The preposition "de" ("of" or "about") takes the
ablative case of the noun, which is "minimis." (The verb of which
"curat" is the present tense is the root of the English word "curate,"
to care for or preserve, as in a museum).

"Minimus" is the nominative case, which is only used as the subject of
a sentence, never as the object of a preposition.

This is why Lewis Carroll's Alice, considering how to address the
mouse, thinks of her brother's Latin text: A mouse, of a mouse, to a
mouse, a mouse, O mouse! In English it's always "mouse," but in Latin,
the noun changes form.

Every year I give my graduate students a spelling lesson, and it is
always an exam question; so I am doing my little part here by turning
out, every year, 20 to 30 new MS in Accounting/Tax graduates who can
spell de minimis correctly.

Katie in San Diego
 
N

nonsense

There is a de minimus amount of loan principal of $10,000, which allows
you all to ignore the issue of interest altogether.
Is this $10k limit a yearly amount, or just per loan? If per loan,
could the relative give two loans separated by say a week from each
other? This way I would get the $20k in funds, which I could pay back
in similar two installments?
 
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D

dpb

Is this $10k limit a yearly amount, or just per loan? If per loan,
could the relative give two loans separated by say a week from each
other? This way I would get the $20k in funds, which I could pay back
in similar two installments?
For such a short period, the interest at the IRS-imputed value currently
would be pretty minimal amount anyway. I didn't look it up, but even if
still 5% or so 2/52*0.02*20k --> <$20

Seems might as well just make it a fully-documented loan and be straight
up for a 20-dollar bill.

--
 
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