Just some thoughts, AFAIK.
1. Tax-wise, if this transaction is classified as a loan per the IRS rules, you have to record income on market interest rates. Since the loan is unsecured, the market interest rate will be higher than a short term money market rate, it might be in the 9-10% range, probably higher, for this type of loan (walking into a bank and trying to secure a loan with an expected inheritance). You record interest income, if you charge less than the market interest rate, the market interest rate may need to be imputed to market so that you will still pay income tax on the difference. Also, she doesn't get a tax write off, as you don't own the house (I think). I would use a lawyer to draft up the loan, and a CPA to figure out interest rate impacts at tax time so that your position is defensible in an fed/state tax audit.
2. I don't believe you can control the estate distribution on this loan amount, these are 2 separate transactions, the estate needs to distribute as per what is stated, you can't withhold the loan amount (maybe other's can chime in if there's a legal way to reduce an estate payout).
My 2 cents, despite your good intentions, most on here will think this is a very bad idea, there are a lot of horror stories of family loans. Circumstances can change to what you think may happen. IMHO, your sister should wait or get a mortgage. IE, you are counting chickens before they hatch.
1. Tax-wise, if this transaction is classified as a loan per the IRS rules, you have to record income on market interest rates. Since the loan is unsecured, the market interest rate will be higher than a short term money market rate, it might be in the 9-10% range, probably higher, for this type of loan (walking into a bank and trying to secure a loan with an expected inheritance). You record interest income, if you charge less than the market interest rate, the market interest rate may need to be imputed to market so that you will still pay income tax on the difference. Also, she doesn't get a tax write off, as you don't own the house (I think). I would use a lawyer to draft up the loan, and a CPA to figure out interest rate impacts at tax time so that your position is defensible in an fed/state tax audit.
2. I don't believe you can control the estate distribution on this loan amount, these are 2 separate transactions, the estate needs to distribute as per what is stated, you can't withhold the loan amount (maybe other's can chime in if there's a legal way to reduce an estate payout).
My 2 cents, despite your good intentions, most on here will think this is a very bad idea, there are a lot of horror stories of family loans. Circumstances can change to what you think may happen. IMHO, your sister should wait or get a mortgage. IE, you are counting chickens before they hatch.
Statistics: Posted by Kagord — Wed Jul 17, 2024 5:50 am — Replies 2 — Views 201