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There is no more back ended interest deductions. IRS closed that loophole years ago.

If you owe the donor $100,000, for example, and you receive a gift of $10,000 to reduce the principal, there is no gift tax, But there is interest. If the rate is not stated in the loan document, the interest will be imputed as if there had been a rate stated. Interest tables are published by IRS. This would be the long term rate probably (there are three). I don't know when the loan was established, but IRS rates of recent times have been low - below 5%.

The interest would be income to the donor, and if the mortgage loan was recorded (it must be to be deductible), you may deduct the interest as mortgage interest.

Best wishes

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