If I loan my daughter $200,000 for a house at zero percent, are there tax consequences?
yes Code § 7872 - Treatment of loans with below-market interest rates
Below-market loans to which section applies
1 ) Any below-market loan which is a gift loan or (this can be a demand loan or term loan)
2) Compensation-related loans or
3) Any below-market loan directly or indirectly between—
(i)an employer and an employee, or
(ii)an independent contractor and a person for whom such independent contractor provides services.
4) Corporation-shareholder loans or
5) Tax avoidance loans the principal purpose of which is the avoidance of any Federal tax.
I would conclude of the 5 types above you have a gift loan (because normally loans such as a mortgage have an interest element or put another way would you loan a stranger money even with adequate security at 0% interest - you might but you'll never convince the IRS)
based on the limited ability to demand repayment, the gift loan is subject to other provisions of this code section related to term loans
Forgone interest is the amount of interest which would have been payable on the loan for the period if interest accrued on the loan at the applicable Federal rate and were payable annually on the last day of each calendar year
The applicable Federal rate shall be the applicable Federal rate in effect under section 1274(d) (as of the day on which the loan was made), compounded semiannually.
what does all this mean? you'll have interest income (schedule B) she'll have interest expense (schedule A)
each of you will be treated as making a gift for the amount of foregone interest. However, whether gift tax returns are required would depend on the amount of forgone interest and any other gifts exceeding the annual exclusion made during each calendar year.
