Our daughter is getting married, and we’d like to help her buy a home. Can we lend her the money without any tax problems?
Yes, but you must follow the tax rules for intrafamily loans. Essentially, if the amount of the loan exceeds $10,000, you have to charge interest at a reasonable rate. If you don’t charge any interest, or the rate is a below-market rate, the IRS may impute interest income to you. This is a worst-case scenario because you’re paying tax on “phantom interest income” that you never actually received.
If you charge an interest rate that at least equals the Applicable Federal Rate (AFR) on the loan, that rate will automatically be considered reasonable.
Small Business Tax Strategies