AboutJohn Stancil, CPA Expertise I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a part time tax practice for over 30 years. I am a member of the AICPA, National Society of Tax Professionals, and the Institute of Management Accountants.
Experience I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CFM, and CIA. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I write a monthly tax column for the local newspaper.
Expert: John Stancil, CPA Date: 12/6/2007 Subject: Loan Between Friends
Question I need to borrow $85k from a generous friend. He has agreed this will be an interest-free loan and I plan on paying it back in less than a year. However I've read that the IRS will still imposed an applicable federal interest rate on my friend for lending me the money. Is he required to report the imputed interest? Is there anyway he can avoid reporting the IRS imposed interest? Maybe document it as a demand loan? If so, how should we report this interest free loan in our tax return?
Answer Det,
Thanks for your question.
There is no legal way to avoid the imputed interest. You will have interest expense for the amount of imputed interest. If it is a business or investment loan, the amount may be a deduction for you.
He will have interest income in the amount of imputed interest, which must be reported on his return. In addition, he will be considered to have given you a gift of the amount of interest. If this exceeds $12,000 he must file a gift tax return. However, there is a $1,000,000 lifetime exemption, so it is likely no gift tax would be due.
