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Helping a family member in need – Don’t let your intrafamily loan run afoul of the IRS


SKU: ESTma113. Category: .


Abstract: When lending money to family members, the first question to ask is: “Is this transaction truly a loan?” If the IRS concludes that the transaction isn’t a bona fide loan, it will recharacterize it as a taxable gift. By formalizing the transaction and treating it as a loan, it’s possible to avoid negative tax consequences and have the necessary documentation to support a bad-debt deduction in the event the borrower defaults. This article examines the difference between a loan and a gift, appropriate interest rates, and how the type of loan affects income and gift taxes.

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