Linda left Jeff after 7 years of marriage.

Jeff is 34 years old, single no kids, hard worker , all around very good kid.

Jeff is now $47,000 in in debt without the second income to help pay it.

Jeffs dad ( Karl) wants to walk in to Jeff's bank and pay $7,000.00 per month on Jeff's loan , until its payed off .

Since jeff did not actually receive the money,
will jeff have to pay taxes on the loan payment ?

quote:

Originally posted by bendable:
Linda left Jeff after 7 years of marriage.

Jeff is 34 years old, single no kids, hard worker , all around very good kid.

Jeff is now $74,000 in in debt without the second income to help pay it.

Jeffs dad ( Karl) wants to walk in to Jeff's bank and pay $7,000.00 per month on Jeff's loan , until its payed off .

Since jeff did not actually receive the money,
will jeff have to pay taxes on the loan payment ?

No, but not for the reason you think...

Jeff’s Dad is gifting Jeff the money. It is not income, no taxes due.

Karl might be liable to pay the “Gift Tax” since he will be giving Jeff more than $15,000 (annual exemption per recipient) this year. However, so long as Karl doesn’t give away more than about $11 million in his lifetime, he can apply the amount over $15K he does give (annually) against his $11 million lifetime exclusion amount and not be liable for any tax.

Any total of gift over $15k to one person and Karl has to file form 709 with the IRS. It is independent from the 1040.


Just went through similar this year when my Dad was feeling generous to my brother and I.

None will be taxable if Karl files a gift tax return and hasn't already used his all of his Unified Credit. Is Karl married? If so, he can elect to gift split, he and his wife can use their annual exclusions and use up less of their Unified Credits.

karl is married

quote:

Originally posted by bendable:
karl is married

So Karl and Mrs Karl can each give Jeff $15K annually before triggering a 709 and between them they can exclude $22 million.

sorry , his loan is $47,000

(stupid dyslexia)

quote:

Originally posted by 911Boss:
... and between them they can exclude $22 million.

I ***THINK*** the Lifetime Gift Tax Exemption is usually expressed as double the actual value. Journalism and artistic flair, maybe.

Lifetime gifts beyond the annual exclusion amount count towards the $11.4 million combined estate/gift tax exemption. - forbes

So if daddy divorced (not Karl, but in general) his Lifetime Gift Tax Exemption is $5.7 million.

But if he becomes a widower, it is $11.4 million.

But I've got bigger problems. Those numbers are just rounding figures to me when calculating my net worth. So I've got to come up with a decent tax dodge. Maybe gold ...

Why would any kind of tax be in play? Karl is giving the money to the bank to make the loan payments, not giving it to Jeff, correct? Or is it the other way around?

Nothing if Jeff and Karl keep their mouths shut.

quote:

Originally posted by Woodman:

...

But I've got bigger problems. Those numbers are just rounding figures to me when calculating my net worth ...

Wish I could have that “problem”...

quote:

Originally posted by egregore:
Why would any kind of tax be in play? Karl is giving the money to the bank to make the loan payments, not giving it to Jeff, correct? Or is it the other way around?

I'm sure it could be gotten around, until Jeff is audited and hit for not reporting the 'gift'.

I assume they could write up a 'contract' whereas Karl now 'owns' part of Jeffs house, but that may have other implications.

quote:

Originally posted by Woodman:
But I've got bigger problems. Those numbers are just rounding figures to me when calculating my net worth. So I've got to come up with a decent tax dodge. Maybe gold ...

Yeah I heard about you...

^^^^^^^ ^^^^^^^

If Karl does this as a gift, then it has been discussed thoroughly.

Another option would be for Karl to gift up to the limit and provide the rest as a loan. He could write the loan up with a lower (but still reasonable/defensible) interest rate. Between an annual gift up to the limit and a lower interest rate, Karl should be able to transfer the amount to Jeff legally, tax free (including gift tax free) in less than four years. If Karl is married to Sally, Karl and Sally could get it done in less than two years. This without filing form 709 or impacting Karl’s unified credit.

quote:

Lifetime gifts beyond the annual exclusion amount count towards the $11.4 million combined estate/gift tax exemption. - forbes

So if daddy divorced (not Karl, but in general) his Lifetime Gift Tax Exemption is $5.7 million.

But if he becomes a widower, it is $11.4 million.

If Sally’s assets go to Karl, then Karl has a $5.7M lifetime exemption and Sally’s exemption is lost. If Karl and Sally had competent estate planning help, they may have a living trust and an A B trust setup. When Sally passes, the trust splits and assets expected to appreciate the most might be put into the decedent’s trust and the other half of the assets into the survivor’s trust. This preserves Sally’s lifetime exemption on the transfer into the survivor’s trust.

Please note: I am neither a lawyer nor an estate planning expert and it has been 20 years since I looked at this stuff. If you want to do something like this, see your estate planning lawyer to guide you through it. He may have a better approach for your situation.

quote:

Originally posted by RHINOWSO:
I'm sure it could be gotten around, until Jeff is audited and hit for not reporting the 'gift'.

Recipient doesn’t report, giver does...

Go in and pay cash on the loan balance. I don't think the IRS is going to ask where you got the money from since the only record will be principal balance and interest paid on the year end 1099-INT.

quote:

Originally posted by AZSigs:
Go in and pay cash on the loan balance. I don't think the IRS is going to ask where you got the money from since the only record will be principal balance and interest paid on the year end 1099-INT.

This is why the IRS does a receipts and disbursement analysis when they audit you. part of that includes looking at the change in your assets and the change in your debts and when you can't explain why that debt went down or went away, they smell unrecorded income. And, you start responding like Ralph Kramden, Homina, homina, Homina.

quote:

Originally posted by slosig:
... He could write the loan up with a lower (but still reasonable/defensible) interest rate. ...

The minimum interest one will want to charge is the IRS Applicable Federal Rate. Currently 2.72%, Karl could declare interest income for amounts above his/their Annual Exclusion, and relieve that principle debt the following year(s). As soon as Ira IRS sees interest income on Karl's 1040 without a corresponding 1099 in the system, she'll figure it out. Karl will merely maintain a simple loan statement for his records

The applicable federal rate (AFR) is the minimum interest rate that the Internal Revenue Service (IRS) allows for private loans. Each month the IRS publishes a set of interest rates that the agency considers the minimum market rate for loans. Any interest rate that is less the AFR would have tax implications. The IRS publishes these rates in accordance with Section 1274(d) of the Internal Revenue Code.
https://www.investopedia.com/t...cablefederalrate.asp

The "rounding figures" reference is from an old old old Doonesbury strip. Duke was working overseas as a government contractor and wanted to syphon a a few million dollars from a contract.

quote:

Originally posted by AZSigs:
Go in and pay cash on the loan balance. I don't think the IRS is going to ask where you got the money from since the only record will be principal balance and interest paid on the year end 1099-INT.

Anytime you deposit cash over a very nominal amount (around $500) these days or pay something like a loan at a bank with cash, they ask for your drivers license or debit card and you have to put the pin in, and record it. What they do with it, I have no idea. But there is a record of it.


I'd pay the $7k a month for 2 months, Have your wife pay $7k a month for 2 months, then wait till next year to pay the remainder......Or the other thing you could do is write it up as a loan at 3% interest to your son, pay the bank off, then gift him the 3% interest back at a later date.