Ask the Experts!
The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.
Question: My client wants to loan money to his son at a low interest rate so that the son can start a business. Does that transaction have any gift tax consequences?
Answer: The bad news is that the IRS says that a family loan has gift tax consequences if no interest is charged. The good news is that these days charging a low amount of interest for the family loan could be enough.
How much interest is enough? It depends on how long the loan’s term is for. For example, if the loan must be paid back in five years, the IRS says that its mid-term rate is the minimum loan interest rate that must be used.
The IRS publishes interest rates every month. The mid-term rate for September of 2012 is .84%–less than 1% per year.
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