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Financial Planning / Tax Strategies
|Subject: Re: House for Neice - anything taxable ?||Date: 2/6/2000 5:11 PM|
|Author: overpar||Number: 27498 of 119660|
Here is my take on your situation. Your niece and husband purchased a house for $52,000 ($50,000 plus $2,000 closing costs). To finance the purchase, they took a loan from the bank for $37,000 at market rates, and they took a loan from you and your sister for $15,000 at zero interest rate (gift loan). Here are the tax consequences of each.
Regarding the loan to the bank. Since your niece is paying the mortgage on the property (even if through her mom), she can deduct the mortgage interest as an itemized deduction, assuming she itemizes.
Regarding the loan to you. The tax rules would generally have her impute the interest payment to you. They would deem her to pay you interest (say $10) and deem you to give it back to her in the form of a gift. This would result in $10 of income to you and $10 of mortgage interest to her (assuming the $15,000 is secured by the principal residence).
However, there is an exception to this rule. If the aggregate amount of the loan between the lender and the borrower does not exceed $10,000, there is not imputation of interest required. Based on my review of the rules, I take this to mean the amount of loan between the borrower and any one person (husband and wife count as one person). Therefore, if the $15,000 loan is structured as two $7,500 loans, one with her mother and one with you and your husband, then you should not have to impute the interest.
You want to make sure you have documents evidencing all of the relationships. For example, is the property deed in her name. If not, have something drafted stating that her mom is acting as a nominee on her behalf and that the niece is making all payments regarding the property.
Also, have separate loan agreements between the niece and you and the niece and her mother.
If you need any additional detailes, please let me know.
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