Personal Loan Question

inflightmeal

inflightmeal

Level 2 Member
Earlier this year a friend gave me $15k to help me out with something. I'm paying it back to my friend interest free. I deposited the personal check via ATM at my bank. Later, I realized that since it was over $10k the bank may have flagged it. So, I'm thinking just in case I should probably report it to the IRS as a personal loan (with whatever the minimum interest might be) in case the bank reported it to them in some way. Not sure how common this is but I'd rather not get dinged on this. I haven't checked with my accountant but I just wanted to take the temperature here... am I over-thinking this? Or am I on the right path? Thanks :)
 
Matt

Matt

Administrator
Staff member
Technically, you likely need to pay interest on the loan. There can be forgiveness on this for loans under $10K. This would likely use the short term AFR rates as you mention the loan was repaid in this year, the current table for that is:

http://www.irs.gov/pub/irs-drop/rr-14-26.pdf

You're looking at less than 0.5% here, if you want to be proper pay him the amount in interest, and have him declare it.

It is very unlikely that the bank reported to the IRS that you had money, and that the IRS then suspects you had a loan, however, that doesn't mean that the proper rules would be to pay the interest.

The underlying reason is people were using this interest free loan concept to shift investments into others accounts at lower tax brackets.
 
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