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Member
Group: Forum Members
Last Login: 7/28/2009 9:49:02 AM
Posts: 9,
Visits: 45
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In a situation where grandparent is loaning money to grandchild to buy
a house, am I correct in thinking that even if all the interest is
under the annual gift amount, that the lender/giftor still has to pick
up interest income on his 1040? The annual gift just allows the
borrower/giftee not to have to move cash to lender/giftor, but they
still have a mortgage interest deduction, and the lender/parent has
interest income?
Or is this incorrect and as long as the interest amount is less than
the exclusion, no one needs do anything on any tax return.
If loan is $500,000 @5%, and gift exclusion is 13,000 x 2 in 2009, then
the interest is $25,000 and less than exclusion for h & w to
grandchildren. Would the grandparents still pick up $25,000 in interest
income, even if they gift that amount to the grandchild?
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Power Member
Group: Forum Members
Last Login: Today @ 2:34:43 PM
Posts: 144,
Visits: 810
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| This is an interesting question. I hope you weren't counting on an answer before October 15! I'm not aware that the low interest or interest free loan reporting has anything to do with gift tax exclusions. If the loan is secured by the residence, the borrower has an interest deduction and the lender interest income regardless. The forgone interest would be a gift but would only be reported on a 709 if it exceeded the $12,000 (for 2007) exclusion. If the loan was not secured by the residence and if the borrower has a limited amount of investment income, the lender's interest income can be limited to the borrower's investment income. That only applies if the loan is $100,000 or less I believe.
Mary Kay Foss
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