Silent interest-free loan to buy home -- tax consequences?

[SecondCor521]

The OP indicated that the loan was being used to buy real property, but I agree the borrower would need to assess whether or not the interest is deductible ginve their facts and circumstances.

One of the criteria for deductibility is whether or not the loan is secured by the real property. Didn't sound to me like OP's situation meets that criterion. From the instructions on mortgage interest on Schedule A:

"A home mortgage is any loan that is secured by your main home or second home, regardless of how the loan is labeled. It includes first and second mortgages, home equity loans, and refinanced mortgages."

-- 2023 Instructions for Schedule A (2023) | Internal Revenue Service

 

[pb4uski]

... Didn't sound to me like OP's situation meets that criterion....

Perhaps, but we don't know, which is why I said

... the borrower would need to assess whether or not the interest is deductible ginve their facts and circumstances.

Who knows? It would be a moot issue if the borrower doesn't itemize deductions.. most taxpayers (90%) these days do not itemize.

 

[SecondCor521]

Perhaps, but we don't know, which is why I said

Who knows? It would be a moot issue if the borrower doesn't itemize deductions.. most taxpayers (90%) these days do not itemize.

Fair points.

 

[VanWinkle]

The minimum legal interest rate is available at the time the loan starts and should be used to be completely legal. I have done house loans for my daughter and student loan for my granddaughter using the minimum interest rate each time. It makes the loan seem more binding to the borrower and I can legally report the small amount of income.

Applicable Federal Rates | Internal Revenue Service

IRS provides various prescribed rates for income tax purposes.

www.irs.gov