UrbanBaby - Quick -- tax smart/accounting folks: I'm...

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Quick -- tax smart/accounting folks: I'm having an argument (maybe disagreement) with my mother on the phone right now. Let's say a family member loans another family member $15K, and they set up a repayment schedule with interest, etc between the two of them, and the repayment is happening as scheduled. Does any of that affect either of their taxes?
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06.06.09, 08:32 AM [ Flag ]
- No. If the bank loans you 15k does it affect your taxes?
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  06.06.09, 08:36 AM [ Flag | link to this post ]
  - right. that I knew. but does it affect the person who LOANED the money, tax wise?
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    06.06.09, 08:39 AM [ Flag | link to this post ]
- My CPA dh says~ The borrower will get a deduction for the interest he is paying. The lender has to report the interest as income.
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  06.06.09, 08:45 AM [ Flag | link to this post ]
  - really? a deduction for the interest paid to a family member? Really? So since it's between family members, if the borrower does not report the deduction, the lender doesn't have to report the income, correct?
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    06.06.09, 08:48 AM [ Flag | link to this post ]
    - Legally, both must declare the interest. It's the law (CPA, here).
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      06.06.09, 09:33 AM [ Flag | link to this post ]
- The loan (probably) only qualifies as personal interest and is not deductible by payor. Only businesses have an ironclad interest deduction. Recipient has taxable income. No symmetry is required. Get deductible interest through a home mtge loan--maybe refinance? (I'm a tax person)
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  06.06.09, 11:14 AM [ Flag | link to this post ]
  - this is what I would think. seems weird that a loan between family members who choose to even pay interest on the loan would be any of the IRS's business.
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    06.06.09, 03:20 PM [ Flag | link to this post ]
    - The interest is very small on this transaction. Unless there is something else that is unusual on the tax return, this would be unlikely to trigger an audit. Yes, the income is taxable (but, of course, only the interest part), but it's a matter of ethics as to whether it gets taxed. And I am able to tell you this because this is an anonymous message board -)
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      06.06.09, 06:52 PM [ Flag | link to this post ]