Author Topic: Loaning money and gift tax  (Read 1031 times)

jeromedawg

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Loaning money and gift tax
« on: November 06, 2017, 04:42:32 PM »
Hey all,

If we deposited $4k in a family member's account for them to borrow (this is informal and without contract, etc) and they write us a check for $4k to repay it, is any of this going to affect the $14k gift tax limit?

If not, how will the IRS, etc know that it's not a gift? 

Miss Piggy

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Re: Loaning money and gift tax
« Reply #1 on: November 06, 2017, 06:38:01 PM »
How would the IRS know about it?

jeromedawg

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Re: Loaning money and gift tax
« Reply #2 on: November 06, 2017, 06:51:04 PM »
How would the IRS know about it?

I don't know... if they audit? Or aren't you supposed to report if you gifted more than $14k?

So what if you gift someone $14k and then that person lets you borrow $4k for (with the expectation that you pay it back), and then you write them a check for $4k later in the same year. Would that $4k be counted in excess of the $14k gift limit?

kpd905

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Re: Loaning money and gift tax
« Reply #3 on: November 06, 2017, 07:09:32 PM »
There is a $5.49 million lifetime gift tax exclusion, so until you go over that amount, no gift tax will need to be paid.  The issue is that if you gift over $14,000 you need to file and have the amount subtracted from your lifetime exclusion.

jeromedawg

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Re: Loaning money and gift tax
« Reply #4 on: November 06, 2017, 07:11:28 PM »
There is a $5.49 million lifetime gift tax exclusion, so until you go over that amount, no gift tax will need to be paid.  The issue is that if you gift over $14,000 you need to file and have the amount subtracted from your lifetime exclusion.


In the context I described, would the $4k still be considered a "gift" ?
« Last Edit: November 06, 2017, 07:13:36 PM by jeromedawg »

GizmoTX

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Re: Loaning money and gift tax
« Reply #5 on: November 06, 2017, 07:29:57 PM »
Only if they don't repay it.

secondcor521

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Re: Loaning money and gift tax
« Reply #6 on: November 06, 2017, 07:36:00 PM »
You decide what you think it is first - either a loan or a gift.  You then file your tax return based on what you have decided it is.

If the IRS later audits your tax returns, and the tax return and laws match with the facts, then you're fine.

It sounds like you think it is a personal loan.  If so, it will not count against the $14K annual gift limit, because it isn't a gift.  If you want to make sure of this (perhaps you are worried the person won't pay you back, and thus it will look like a gift), you could certainly write "personal loan" in the memo field of the check and/or send them an email stating that it is a personal loan with no interest.(*)

Another obvious way to show that it is a loan and not a gift is to keep track of the fact that they repaid you the $4K later.

In practice, the IRS audits very few people, and those that they audit at lower income levels I believe they take a look at your tax return and make sure it's correct.  They don't do a total colonoscopy level examination of all of your financial accounts and transactions to search for tax evasion.  So if you can support all of the numbers that *are* on your tax return, they won't care about the numbers that *are not* on your tax return.

Now if you're money laundering or something, then the FBI or police may get interested, but I don't think the IRS does.

(*) Technically, if you loan someone money and don't charge them interest, then the non-payment of interest from them to you becomes a gift from you to them, but in practice with family loans I don't think anyone cares too much.