Loan versus gift

[Face_in_the_crowd]

I loaned money to a family member about 10 year ago (I wrote "loan" on medical bill checks that I wrote). They are finally getting their finance in order and thinking about paying me back soon. I've heard that if I don't collect interest then the IRS will consider it a taxable gift instead of a repayment of the loan. So how low of an interest rate can I charge for it to be considered a loan? 0.001% ? I was going to collect a back interest payment this year for years past. Then next year or the year after they would pay me back in full.

[Anonymous_]

---

@Face_in_the_crowd wrote:

So how low of an interest rate can I charge for it to be considered a loan? 0.001% ? 

---

You have to use to AFR (applicable federal rate), for the period of the loan, which the IRS publishes.

See https://apps.irs.gov/app/picklist/list/federalRates.html

You might want to read through the following TurboTax article.

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

Also, note that if you were paying a provider of medical services directly, that would not be considered a taxable gift.

See https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-tax...

[Face_in_the_crowd]

The total amount of my loans was less than $8,000, some for medical insurance premiums, ambulance charges, and for a care taker. I wrote these checks out to the insurance company, to the ambulance company and to the care taker -- not to this family member. These payments from 2011 to 2013.

So what you're saying is that if I am repaid then there are not taxes for me to pay?

[Anonymous_]

---

@Face_in_the_crowd wrote:

So what you're saying is that if I am repaid then there are not taxes for me to pay?

---

No, you would never pay income tax on the repayment of the principal balance of the loan. Only the interest (or imputed interest) would be taxable.