taxes

5 myths about gift tax laws

Myth No. 5: An interest-free loan is not a gift
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You loan your son $21,000, but you're not charging interest because he's your son. It's still a loan, right?

Unfortunately, it would probably be considered a gift, says Gianola. If you want it to be considered a loan, you have to truly treat it like a loan, she says.

"Have him sign a promissory note," says Gianola. "And you have to charge market-rate interest. But interest rates are low now. So you could say 'a good interest rate at a bank is 3 percent, so I'm going to charge him 3 percent.'"

Lay it all out in writing. Stipulate the amount, the interest rate and -- also important -- the repayment schedule, she says.

The IRS publishes acceptable interest rates monthly on its website.

What if you later change your mind and decide to forgive the loan? In that case, says Gianola, it would be considered a gift.


 

 

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