Legal Question in Tax Law in Massachusetts

Can I give my son an interest free, unsecured loan to buy a business, or does the IRS require that I have to charge a minimum interest rate to avoid gift tax issues? The loan is expected to be ~ $150K, and the bank rate is 6% for this type of loan. That means the max interest would be $9K/yr if I charged the full interest rate.

Thanks


Asked on 9/07/14, 4:31 pm

1 Answer from Attorneys

An Interest rate loan can result in imputed interest income to you and perhaps a gift tax issue although assuming you have not used up your gift tax credit

However under IRS rules you can charge him the Applicable Federal Rate (AFR) which is less than 3% for loans that are 9 years or longer.

Long Term AFRs

(Term More Than 9 Years)

Compounding Period

Annual Semi-Annual Quarterly Monthly

September 2014

Rev.Rul. 2014-22 2.97% 2.95% 2.94% 2.93%

There are other ways to do this depending on your long term goal between you and your son. Feel free to call me if you have more questions.

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Answered on 9/07/14, 5:30 pm


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