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Minimum interest required?

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Troubled

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Jul 31, 2015, 10:01:52 AM7/31/15
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I know that if you don't have enough interest on a loan to a family member the IRS will input the interest. What is the minimum acceptable?

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Alan

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Jul 31, 2015, 7:15:05 PM7/31/15
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On 7/31/15 6:59 AM, Troubled wrote:
> I know that if you don't have enough interest on a loan to a family member the IRS will input the interest. What is the minimum acceptable?
>
You must use the AFR (applicable federal rate) published each month in
an IRS Revenue Ruling. See the link below for the August 2015 published
rates. The rate you want will come from Table 1. There is a short term
rate (loans for a period up to 3 years), mid-term rate (loans over 3 and
not over 9 years) and long term (over 9 years). Each rate is expressed
for a payment period of either monthly, quarterly, semi-annually and
annually.

E.g., if you loan your brother an amount of money in excess of $10,000
in August 2015 for 5 years and he will pay you back monthly, the rate
needs to be 1.8%. Anything less than that and the IRS will tax you as if
you received 1.8% and any amount not received because the interest is
too low, will be considered a gift from you to him and subject to the
gift tax rules (e.g., you can gift up to $14K annually to any person).



http://www.irs.gov/pub/irs-drop/rr-15-16.pdf

tar...@google.com

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Aug 1, 2015, 1:15:03 AM8/1/15
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On Friday, July 31, 2015 at 7:01:52 AM UTC-7, Troubled wrote:
> I know that if you don't have enough interest on a loan to a family member the IRS will input the interest. What is the minimum acceptable?
LMGTFY:

https://www.nationalfamilymortgage.com/afr-rates/
http://apps.irs.gov/app/picklist/list/federalRates.html

Troubled

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Aug 3, 2015, 12:05:04 AM8/3/15
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On Friday, July 31, 2015 at 7:15:05 PM UTC-4, Alan wrote:

>
> E.g., if you loan your brother an amount of money in excess of $10,000
> in August 2015 for 5 years and he will pay you back monthly, the rate
> needs to be 1.8%. Anything less than that and the IRS will tax you as if
> you received 1.8% and any amount not received because the interest is
> too low, will be considered a gift from you to him and subject to the
> gift tax rules (e.g., you can gift up to $14K annually to any person).
>


So, as long as the required interest is under $14,000 and there are no other gifts, then it can just be ignored as a gift under the minimum required to be reported? Well, that is easy enough.

Arthur Rubin

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Aug 3, 2015, 3:40:04 AM8/3/15
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On Sunday, August 2, 2015 at 9:05:04 PM UTC-7, Troubled wrote:

> So, as long as the required interest is under $14,000 and there are no other gifts, then it can just be ignored as a gift under the minimum required to be reported? Well, that is easy enough.
Not exactly. The lender must still report the required interest as
income.
--
Arthur Rubin
CRTP, AFSP, in Brea, CA

Troubled

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Aug 3, 2015, 11:10:04 AM8/3/15
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On Monday, August 3, 2015 at 3:40:04 AM UTC-4, Arthur Rubin wrote:
> On Sunday, August 2, 2015 at 9:05:04 PM UTC-7, Troubled wrote:
>
> > So, as long as the required interest is under $14,000 and there are no other gifts, then it can just be ignored as a gift under the minimum required to be reported? Well, that is easy enough.
> Not exactly. The lender must still report the required interest as
> income.
> --
So if say no interest is paid on a $100,000 loan, then income tax has to be paid on $1,800 of imputed interest AND a gift of $1,800 was made? Is that it (approximately...)?

Alan

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Aug 3, 2015, 7:35:04 PM8/3/15
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On 8/3/15 8:09 AM, Troubled wrote:
> So if say no interest is paid on a $100,000 loan, then income tax has to be paid on $1,800 of imputed interest AND a gift of $1,800 was made? Is that it (approximately...)?
>
On a mid-term loan that has no interest payments, I believe the IRS uses
the annual rate, not the monthly rate. So.... you are correct, but the
amount would be $1820 (1.82%).
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