4> didn't want to spend the hour or two dealing with it. It's number 4. The loan amount is small enough and the rate low enough that the interest amount will be fairly low - less than $4K in the first year. It's entirely possible that even if it were deductible, our itemized deductions would still be less than the standard deduction. We plan on paying it down as soon as possible.Taxes will be paid on the interest. My parents leave plenty of tax breaks on the table to avoid having a more complicated return that could raise their audit likeliness, so the last thing they would do would be not declare it as income. They are making more off this loan than they are with the money sitting in treasuries or money market accounts, so its win-win for them even after paying the taxes.Thanks for the responses everyoneWilliam
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