Legal Question in Real Estate Law in California

Re: Promissory nate

Yes, it is legal, but why do it? If there is no interest, then there is no income for the person who loaned the money to report.

Re: Promissory nate

While it is legal to write an interest-free note, it is not free of tax consequences. The IRS and the State will impute a reasonable interest rate to the loan, and the lender will be charged with income they did not realize. I'd suggest a nominal interest rate of 3% to avoid the imposition of the tax penalty on the lender.

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