Gift loans of under $10k are exempt if the money isn't directly used to buy income-producing assets. Does using it toward a business loan count as income producing asset?

I’m borrowing money from family for a down payment on a small business loan and want to understand the tax implications for them, specifically with imputed interest. According to IRS Publication 550, gift loans of $10,000 or less are exempt as long as the money isn't directly used to buy or carry income-producing assets. Does using a gift loan toward a business loan count as an “income producing asset”? The business loan will be partially used to purchase equipment, but the gift (family) loan will be used as capital for for the loan.

1053

Level 15

Jun 9, 2023 6:31:30 PM

You are confused ... please talk to a local professional to get educated on the rules.

Basically you are getting a loan or a gift and neither are considered income to be reported on a business tax return. What you use the money for is immaterial to the loan/gift being recieved. If you use the money to buy anything for the business then they are deducted as either an expense or an asset.

New Member

Jun 9, 2023 6:34:32 PM

Thanks for the reply. I should clarify. I am concerned with the tax implications for the lender. Would they pay taxes on imputed interest if the loan were below the AFR, or is the loan exempt for them?

Why sign in to the Community?

Gift loans of under $10k are exempt if the money isn't directly used to buy income-producing assets. Does using it toward a business loan count as income producing asset?