How to pay back family loan from overseas

[Leonkun007]

My wife borrow money from her oversea relative( no in US） for short term ( <2 months).

Now we have money to pay back.

Although we could pay back without interest, for tax reason, we would pay some interest for that.

The question, what is the reasonable tax interest ? 

If we pay the interest, do we need report anything to IRS? Does the relative need pay any tax for the interest?

[Mollyyyy11]

As the lender, you simply report as taxable income the interest you receive. On the other side of the deal, the borrower may be able to deduct the interest expense on his or her personal return, depending on how the loan proceeds are used. Even better, interest rates these days are reasonable.

[ToddL99]

There isn't any "tax" reason for you to pay interest on this loan. Interest paid on a personal loan is not deductible on your tax return.

"Reasonable interest" is whatever you (the borrower) and your overseas relative (the lender) agree is reasonable. For loans between family members that might be anywhere between 0% and 5%, but could be higher depending on what interest the overseas relative might be able to get for their money elsewhere.