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7 tips for taking a car loan from family

Understand tax laws
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It's important for the lender to record the transaction as a car loan and not a gift, Kresh says. Otherwise, the lender would be considered a donor in the eyes of the Internal Revenue Service, and they may have to pay gift taxes if the transfer of money is greater than $13,000, he says.

Another tax concern to consider is the interest charged on the car loan. "If the lender doesn't charge interest (at market rates), then the IRS may consider the exchange a gift," Kresh says.

There also can be tax implications for borrowers who don't repay auto loans from relatives or friends. The IRS may consider a forgiven loan as income and try to collect income tax, Kresh says. His advice for all parties is to talk to a tax expert before making any large-scale exchange of money.


 

 

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