Legal Question in Tax Law in Illinois

I have a question regarding taxes and interest rates.
So my parents are looking to help me buy a home but the situation is rather unique. My parents want to create a real estate lending firm in which they would buy the property out right and then I would have a legally binding mortgage through this new existing company. The prime interest rate is currently at 3.25% and they would give me a rate of 3.5% interest on my mortgage but my father is concerned that when the PIR goes up and I have this fixed mortgage rate he would have to pay taxes on this because it's seen as a gift (being under the prime interest rate). So my question is, if I have a legally binding document/contract with my parent's company at an interest rate of 3.5% and the PRI increases, would this now be considered a gift even though it's a legitimate contract that was made prior to the PRI increase?

Asked on 1/09/12, 12:14 pm

Sanford M. Martin Sanford M. Martin, P.A.

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No, so long as you pay for the contract commitment, there is no gift or applicable gift tax.

Answered on 1/09/12, 12:28 pm

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