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Author: richielk Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121182  
Subject: Gift vs. Loan Repayment Date: 7/6/2001 10:35 PM
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Hi,
how does the IRS distinguish between the two? Is it that if you have back-up proof of the loan then it is a loan repayment and not a gift. This is between family members, of course. Also if there is a repayment of interest should that be documented at the time of the loan (will it be considered a gift [and subject to gift tax] otherwise?)
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Author: Charlie48K Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52405 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/6/2001 10:49 PM
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Hi,
how does the IRS distinguish between the two? Is it that if you have back-up proof of the loan then it is a loan repayment and not a gift. This is between family members, of course. Also if there is a repayment of interest should that be documented at the time of the loan (will it be considered a gift [and subject to gift tax] otherwise?)


I'm not sure what the question is? Did you get a loan from a relative? The IRS first tries to decide if it was a valid loan. Market interest, writen documents etc and compares the intest to the market. There's an IRS rule, I don't remember exaxctly but it compares it to a published IRS rate to determine if it's really a loan. If they decide it's a loan they they treat it like that.

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52406 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/6/2001 11:02 PM
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how does the IRS distinguish between the two? Is it that if you have back-up proof of the loan then it is a loan repayment and not a gift. This is between family members, of course. Also if there is a repayment of interest should that be documented at the time of the loan (will it be considered a gift [and subject to gift tax] otherwise?)

In addition to written evidence describing the loan and payment terms at an interest rate above certain minimums established by the IRS, the lender should report the interest received as interest income on Schedule B.

Ira

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Author: richielk Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52407 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/7/2001 12:03 AM
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So it sounds like an interest-free loan is the way to go? So on the year of repayment of the loan, if it was interest-free is there anything special that needs to be done?

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Author: Charlie48K Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52408 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/7/2001 12:10 AM
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So it sounds like an interest-free loan is the way to go? So on the year of repayment of the loan, if it was interest-free is there anything special that needs to be done?

NO. It sounds like you didn't read the postings at all. The IRS WILL assume an interest from a relative's loan. Go back and read the postings again.

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Author: richielk Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52409 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/7/2001 1:42 AM
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So it sounds like an interest-free loan is the way to go? So on the year of repayment of the loan, if it was interest-free is there anything special that needs
to be done?

NO. It sounds like you didn't read the postings at all. The IRS WILL assume an interest from a relative's loan. Go back and read the postings again.

>>
I'm confused - documentation is only required in case of an audit? If the written documentation clearly states a 0% interest is that sufficient?

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Author: ripwest Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52410 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/7/2001 2:03 AM
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how does the IRS distinguish between the two? Is it that if you have back-up proof of the loan then it is a loan repayment and not a gift.

I'm confused, and I suspect that I'm not the only one. What exactly are you trying to compare here? Can you give us a for instance?

It would make more sense to me to be comparing a gift with a loan, not a loan repayment. For instance, a father gives his son $20,000. Is it a loan, or a gift?

Take the other side. Suppose that there is a loan outstanding of $20,000. Now the son repays it. Why on earth would we confuse the repayment with a gift? Or, are you trying to take a payment from one family member to another of $20,000 and disguise the gift as a payback of a bogus loan? I hope not. That's fraud.

What am I missing here. Let's get the basic facts in mind before we start talking about interest rates. It's late, and I guess I'm crabby. I hope I'm not dumb as well <g>

Rip


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Author: richielk Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52411 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/7/2001 3:31 AM
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I'm confused, and I suspect that I'm not the only one. What exactly are you trying to compare here? Can you give us a for instance?

It would make more sense to me to be comparing a gift with a loan, not a loan repayment. For instance, a father gives his son $20,000. Is it a loan, or a gift?

Take the other side. Suppose that there is a loan outstanding of $20,000. Now the son repays it. Why on earth would we confuse the repayment with a gift? Or,
are you trying to take a payment from one family member to another of $20,000 and disguise the gift as a payback of a bogus loan? I hope not. That's fraud.

What am I missing here. Let's get the basic facts in mind before we start talking about interest rates. It's late, and I guess I'm crabby. I hope I'm not dumb as well
<g>

Rip


>>>>>>>


Sorry, I meant the first scenario. Father gives his son 20,000, the son wins the lottery and wants to pay back his father. Minimum documentation on the 20,000 except bank statements, etc. Son can "gift" up to 10k per year over 2 years (maybe without documentation) or just do the repaymet in a lump sum. What sort of documenation is necessary to "bring closure" to the loan? Just the bank statements for the loan and the repayment? What kind of reporting do you need to do for the year on 1040 if there is no interest on the loan?

Thanks

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Author: acm4tax Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52417 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/7/2001 10:45 AM
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How long ago was the "gift/now loan?" Was a gift tax return filed back then? If you want to repay the "gift/now loan" amount and it exceeds $10,000, IRS requires that interest either be paid with the repayment or interest is imputed.

Imputed interest is reported as if received by the recipient on Sch B, but is not deductible by the payer. Wonderful rules, huh?

A minimum rate is established by IRS depending on the date of the loan.

But the bottom line is that if the original amount was a gift, then it not a loan. And you might be deemed to be making a gift back.

You may make a gift of $10,000 a year to as many people as you care to without it affecting the life time exclusion of your estate. If the person you are making the gift to is married, you may make a $10,000 gift to both the person and the spouse for a total of $20,000. If you are married, you may make unlimited gifts to your spouse. So if a joint account is used, and you deem the money in that account as jointly owned between your spouse and yourself, you may make a $20,000 gift to one person - $10,000 from yourself and $10,000 from your spouse. Or you could split the gift into two $10,000 gifts, one made in 2001 and one in 2002. Remember however that this is an annual limit, so if you make other gifts to that person for birthday and other holidays, plan accordingly.

Are you confused yet? I think they hung that government official who coined the phrase "tax simplification"!

Best wishes.

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Author: rensimer Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52418 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/7/2001 11:01 AM
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I think they hung that government official who coined the phrase "tax simplification"!

No, I'm sure they promoted him!

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Author: Charlie48K Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52427 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/7/2001 9:20 PM
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I'm confused - documentation is only required in case of an audit? If the written documentation clearly states a 0% interest is that sufficient?

Ok. I'll try again. The IRS doesn't allow 0% interest. It has to be above the rate they calculate. I don't remember offhand how they do it but it's published. Final answer. In writing or not, they don't allow loans less than what the market asks.

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Author: richielk Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52430 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/8/2001 1:15 AM
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How long ago was the "gift/now loan?" Was a gift tax return filed back then? If you want to repay the "gift/now loan" amount
and it exceeds $10,000, IRS requires that interest either be paid with the repayment or interest is imputed.

>>
Thanks, your response was very clear and charlie's too. The loan was about 3 years ago. Are there any rules on the length before repayment?

So does the repayer of the loan have to report interest paid to generate a 1099-int for the loaner or is it self-reported by the loaner?

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Author: acm4tax Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52469 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/10/2001 9:12 PM
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Unless you're in a business relationship, you don't have to give a 1099-int. But if you did, that would not be considered wrong. It would also support your intention that it was a loan and not a gift.

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Author: couzensj Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52577 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 7/16/2001 2:29 PM
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How does the IRS distinguish between the two? Is it that if you have back-up proof of the loan then it is a loan repayment and not a gift. This is between family members, of course. Also if there is a repayment of interest should that be documented at the time of the loan (will it be considered a gift [and subject to gift tax] otherwise?)


I think what you are referring to is called a Gift Loan by the IRS but I think the max is 100K.

First, make sure the paperwork supports the loan. A loan agreement signed between both parties should support the fact that its a loan and not a gift.

Secondly, if its your intent is to make an interest free loan to say you son/daughter then the issue is how do you avoid the IRS's minimum interest rate issue. By making annual gifts of the forgiven interest each year you should avoid the IRS's minimum interest rate problem - could work as long as the forgiven interest doesn't exceed the 10K per year minimum.



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Author: richielk Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 53320 of 121182
Subject: Re: Gift vs. Loan Repayment Date: 8/14/2001 2:02 AM
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Makes sense - thanks

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