Intra Family Loan tax consequences

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MrMojoRisin
Posts: 165
Joined: Tue Dec 01, 2015 7:25 pm

Intra Family Loan tax consequences

Post by MrMojoRisin » Tue Nov 12, 2019 10:22 am

My brother is having a new central HVAC system installed in his house. He wanted to get a HELOC but due to the condition of his roof (money set aside for that already) the bank would not approve him.

He can get a loan to cover the cost of the system but the rate would be 6-7%.

Our mother has offered to loan him the amount at 3%. We have done intra family loans in the past and they have been just fine, everyone gets paid, no Jerry Spinger episodes were filmed.

The way the loan will work is I will pay the contractor upon completion of the install using my credit cards. I will then get a bank draft from our mother to pay off the credit cards. Wife and I have been using CC points reward system for some time and it has worked well for us.

The amount of the loan is $11,750.00, at 3% for 5 years.

Will the shuffle of these funds through my credit union and credit cards be an issue on our MAGI?

Regards,

Mr. MoJoRisin....

fabdog
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Joined: Wed Jan 16, 2013 1:59 pm
Location: Williamsburg VA

Re: Intra Family Loan tax consequences

Post by fabdog » Tue Nov 12, 2019 10:24 am

nope, just the interest payments need to be reflected to whoever is holding the loan, sounds like your mother will need to add those to her taxes

Mike

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RickBoglehead
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Re: Intra Family Loan tax consequences

Post by RickBoglehead » Tue Nov 12, 2019 10:50 am

The interest rate charged must comply with IRS regulations. 3% is above the minimum that can be charged, so you're good, with Mom declaring the interest as income.
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Topic Author
MrMojoRisin
Posts: 165
Joined: Tue Dec 01, 2015 7:25 pm

Re: Intra Family Loan tax consequences

Post by MrMojoRisin » Wed Nov 13, 2019 10:39 am

Thanks for the replies...

To be more specific, will the points awarded by my credit cards be considered taxable income?

Best wishes

Gill
Posts: 5774
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Intra Family Loan tax consequences

Post by Gill » Wed Nov 13, 2019 10:40 am

MrMojoRisin wrote:
Wed Nov 13, 2019 10:39 am
Thanks for the replies...

To be more specific, will the points awarded by my credit cards be considered taxable income?

Best wishes
No.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

Spirit Rider
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Re: Intra Family Loan tax consequences

Post by Spirit Rider » Wed Nov 13, 2019 10:50 am

The applicable federal rate (AFR) for >= 3 year -> < 9 years is 1.20% for November 2019. Anything >= this rate is fine.

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