Loan to my daughter

[bvi1998]

Hi, 

My daughter is getting divorced and needs to buy her husband out of their condo. I will be giving her $20k to do this. I am 3 years from retirement and will need that money at some point... I thought that maybe I would just take payments from her in 5 years or so which will supplement my income. Can people give me an idea of how to handle this? I could gift her $15 and $5 next year possibly. I also need to get a return on this that would equal what I might get in 5 years or so if I invested it instead. It is in cash at the moment. I realize there is also a tax consideration if she pays me back. 

Thanks!

[tagteam · Accepted solution]

For a straight loan, you simply need to charge her interest on the balance or you will be taxed on the interest the IRS imputes.

See https://turbotax.intuit.com/tax-tips/tax-payments/irs-tax-rules-for-imputed-interest/L7UbulHpC

You can find the applicable federal rates at the IRS web site below.

https://www.irs.gov/pub/irs-drop/rr-21-09.pdf

[Mike9241]

your statements are inconsistent

I am 3 years from retirement and will need that money at some point

I could gift her $15 and $5 next year possibly

if you gift her the money it's hers and she's under no obligation to return it.

interest would only accrue from the date of the loan to the date of the gift.

she might even refuse to pay the interest unless there is written documentation.

under the imputed interest rules you would probably be required to report interest income each year even if not paid.

[bvi1998]

right, I can gift it and she would pay me back.

If I loan it I have a tax burden.

Just trying to figure out, financially, what options I have to loan/gift this money and still get the value out of it for myself. I am not concerned about her paying me back - but I will have an agreement with her just as a good practice.

[AmeliesUncle]

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@bvi1998 wrote:

I can gift it and she would pay me back. ...  but I will have an agreement with her just as a good practice.

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No, if there is an agreement for her to repay you, it is NOT a Gift, it is Loan.  There is no way around that.