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Personal / Family loan payoff question

1,758 Views | 15 Replies | Last: 6 yr ago by The Wonderer
OasisMan
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AG

To those more knowledgeable than I (which is a lot of to you),

- My wife & I owe her parents ~95k
- They are retired and don't need it urgently
- We will be able to start paying them off in July/Aug
- Ideally completing it in <2yrs

What is the best way to go about this?
- Considering me giving him 14k/yr & her 14k/yr + wife giving him 14k/yr & her 14k/yr to skirt under the gift tax (that's how it's done correct?)
- Considering offering to pay mortgage payments for them / offer to move then closer to us (wife is an only child)
- Dropping money into a joint checking account and giving them a debit card (is this legal)

Other options?

Thanks
aggiesq
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AG
If you're repaying a loan the gift tax doesn't apply so forget the 14k limit
OasisMan
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Even if there was never anything written down, just words?

Meaning, for tax reasons, how would they prove it was payback for a loan?
ORAggieFan
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OasisMan said:

Even if there was never anything written down, just words?

Meaning, for tax reasons, how would they prove it was payback for a loan?

Probably depends how you got the money? How'd you avoid the gift tax on the $95k?
libertyag
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AG
When they loaned you the $95k, they didn't treat it as a gift to you I bet. When you start to repay, do so with interest and the substance of the transaction will be that it is a loan. Or draw up a note now.
The Wonderer
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Simple loan agreement backed by a promissory note covers any attempt to construe as a gift. You can back date the effectiveness of the agreement do the date they gave you the money.
IslandAg76
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What was the purpose of the loan. I'm not a CPA but if for the right purpose the interest might be deductible.

Whatever you do give them warning that they have significant money coming in as it might affect their tax planning, IRA withdrawals, etc
brownbrick
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Good on you both for paying back quickly.
2wealfth Man
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You will need to use at a minimum the applicable federal rate for the interest rate. Just google and you will see they are published monthly by the IRS. Just reference the AFR at the applicable rate in the note agreement.
aggiepaintrain
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AG
any single siblings left?
OasisMan
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ORAggieFan said:

OasisMan said:

Even if there was never anything written down, just words?

Meaning, for tax reasons, how would they prove it was payback for a loan?

Probably depends how you got the money? How'd you avoid the gift tax on the $95k?
they directly paid some tuition
Harkrider 93
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AG
2wealfth Man said:

You will need to use at a minimum the applicable federal rate for the interest rate. Just google and you will see they are published monthly by the IRS. Just reference the AFR at the applicable rate in the note agreement.
Do you really have to do this? I thought the difference between the rate given and the "fair" rate would count as a gift. If the total is less than the annual gift amount, then no need to charge the fair rate.
Dynamite08
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AG
If they paid off tuition directly to the company, it is NOT a gift from them. If they had given you the money directly it would be. If you plan on paying back more than 28k/yr to them, I would draw up a simple note so YOU don't become subject to gift tax rules.
helloag99
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Pay them back with cash
combat wombat™
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IMO, if the intent was that you would repay them, its a loan. I would draft up a simple loan document. You can state that they will pay tuition on your behalf and thatbyou will repay them. You should repay with interest. They need to report and pay tax on the interest income.

Receiot of loan proceeds and repayment of the loan are not taxable events.
Stive
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Wow....some of you are REALLY good at complicating family loans.
The Wonderer
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Stive said:

Wow....some of you are REALLY good at complicating family loans.
Papering them up is not complicating. The potential of gift tax necessitates such.
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