@Vince456098 wrote:
Thanks, good question.
It would be a loan without interest
The borrower does not have tax responsibilities. However, you do.
If you make a loan, the IRS expects you to charge interest, and to report (and pay tax on) interest income, even if you don't charge interest. Technically, the borrower pays interest (that you put on your tax return and pay taxes on) and then you return the interest to them as a gift. That means that
- you report interest income equal to the interest you would have received if you charged at least the minimum applicable federal rate.
- you report a gift on form 709 if the amount of forgiven (gifted) interest is more than $18,000 per year. (That seems unlikely in this case.)
For example, if you charge interest once a year, the current AFR is 4.34%.
https://www.irs.gov/applicable-federal-rates
That means that, if you loan out $150,000 on February 1, 2025, you would report $6510 of taxable interest income that would be received by you on February 1, 2026, and included on your 2026 tax return. Or you can calculate interest quarterly or monthly if that's easier. And if your son pays off the loan, the interest goes down of course.
