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Get your taxes done using TurboTax
Penalties? No, there are not penalties for loaning money. If you are truly loaning money, then you are expecting to be re-paid and get that money back. You must enter the interest you receive as taxable income, since you are expected to get that money back with interest if it is a loan. Interest paid to you is taxable income.
If you are giving them the money as a gift, that is different---so are you loaning --or giving---the money to the other person?
Money that you give as a gift is not deductible to you, nor is it taxable to the person who receives the gift. However, there are limits for the amount of the gift you can give to one person without having to complete a form call a Form 709 for the IRS. If you GIVE a gift of more than $18,000 in 2024 to one person, you are required to mail in Form 709 to report the gift. You will not owe tax on the gift.