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I am thinking of lending funds to a relative for purchasing a home. The loan will be recorded as a second mortgage on the deed, at or near market rate. We want the interest paid to be tax-deductible by my relative and income for me.

I only want to do this if there isn't too much paperwork involved with IRS. What is my reporting obligation to IRS? Do I have to provide any annual form to IRS with copy to my relative? What record-keeping do we have to do (other than copy of loan agreement and cancelled checks) in case IRS has any questions?

Thanks for the free advice.

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