I want to loan my girlfriend $15000 at no interest. She will slowly pay it back. What kind of tax implications are there for us? Do we need to disclose on our tax return?

[kxn84]

This is to help her pay the closing costs of a buying a house. Or is it better to give it as a gift?

[Opus 17]

For tax purposes, the loan is not deductible or reportable unless you actually collect interest. Interest income is reportable by you but is not deductible as mortgage interest to her unless you record it with the county as an actual lien binding the property.

For mortgage purposes, she probably can't get a mortgage if you declare this as a loan, because if the lender won't lend her enough to buy the house by herself, they also won't loan her money if she has a second loan that she has to pay back.  That means she will probably have to present the money as if it was a gift to her, and you would have to give her a gift letter to show the bank.  If you actually intend it as a loan, that's technically mortgage fraud although a lot of people probably do it.  If she decides not to pay it back for any reason, she can use the gift loan to defeat you in court.  So consider your options carefully.

[TaxGuyBill]

Because it is over $10,000, there is "imputed" interest, even if it is not collected.  However, the required interest rate is fairly low (0.71%-2.16%, depending on the length of the loan).
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@kxn84  You need to determine if the money is required to be paid back to you or not.  If the agreement is that she gradually repays you, it is a loan, not a gift.  Just be aware of the potential problems that Opus pointed out.

[Opus 17]

imputed interest--learn something new every day.

[kxn84]

Thank you for the answer. I certainly don't want to be booked for mortgage fraud. She hasn't made any offer yet so no money has been exchanged. I am just trying to do this in way that doesn't get us in legal trouble, so I'll just tell her that she needs to wait until the $15K is available on her end. Thank you all for the help.

[Carl]

Keep in mind also, that with the tighter rules and controls my lenders now, all money has to be accounted for. So if $15,000 were to "suddenly" show up in her bank account, the lender will see that sudden appearance in her financial history and will question it. Providing false information to such a question in an attempt to qualify for the mortgage would be mortgage fraud.
If you're willing to "loan" your GF $15,000, wouldn't you think a better investment might be to spend some of that money on a ring for her?:) Hell, give me a $15,000 rock and I'd marry you!

[kxn84]

She actually makes very good money 130K/yr except there's a brand-new townhouse that will be on the market within about a week. The location, price, and timing are perfect except she's about 10K short without wiping her entire checking account.

I have been reading around and it appears borrowing from 401K might be her best worse option besides trying again in a couple of months. She can pay back her 401K loan to herself within a year and hopefully don't lose too much on the remaining principle. I am going to recommend this approach and see if the loan officer is okay with it.

And yes we'll be getting married in 1-2 years although not yet engaged. Dating for 6 years now :).

[Carl]

WHy not buy the house together then? That way, there's no loan and no gift involved, and together you both have the money necessary for the down payment. If you're getting married in the future, then until such time you both have 50% ownership. That will not change when you're married either.

[kxn84]

Thank you everyone. Unfortunately the opportunity has passed since our impromptu decision to buy a house was very sudden. All the units were sold in about 3 days while we were getting the financial together. We've decided to try again later with our *combined* income instead. Thank everyone for all the help.

[Carl]

None whatsoever. If you "loan" her the money, it's not her money. It's yours and you the lender have most likely already paid taxes on it.

[Carl]

If you "gift" more than $14K in a tax year, then you the giver have to file a gift tax return and you the giver has to pay a gift tax. The recipient of your gift reports nothing.

[Opus 17]

If the gift is more than $14,000, a gift tax return is required to report it to the IRS.  But actual tax is not owed unless the lifetime amount of all gifts given by the giver is more than $5.4 million.   The point of the gift tax return is to report the gift and subtract it from the giver's lifetime total.

[VolvoGirl]

So just "loan" her 14,000 then it doesn't need to be reported as a gift.