Donna Genie explains how to distinguish loans from gifts. A real loan needs clear written terms: repayment timing, amount, and interest. The IRS requires imputed interest on loans over $10,000, currently around 4%, updated quarterly. Verbal promises to "pay when you can" don't count as proper loans.
June 16, 2024
$10,000
Quarterly
Around 4%
Let's talk about the difference between a.
Loan and a gift.
If someone has.
Loaned you money, that.
Means there should be an agreement of.
When it's going to get paid back. It has terms.
How long are you going to keep the money, when you get to pay it back, how much you're going to pay back, and what's the interest? So I had a situation the other day where I asked those same questions of one of my new clients that came on board and they had a loan from a family member.
Now, that loan didn't have any payments in the last year. It was just sitting on the books.
Didn't have any interest on it. It was just sitting on the book. So when I asked these questions, they said, oh, yeah, that's a loan. I said, okay, what are the terms of the loan? Are they written or are they verbal? They said, oh, he just told us to pay them back when we could. Okay, folks, that's not a loan. Did you know that the IRS requires.
You to impute interest if your loan is above $10,000? So the IRS.
Sets up rates and they actually update these quarter, these rates every quarter. And they will tell you what this loan rate is. Currently that loan rate's going to be around 4% or so. Let's fix it. Must do what's right.
Let's write up a loan agreement.
And hey, if your family or friends gave you money, you probably ought to pay them interest. Come on.
