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Can we loan our son $5000 without charging interest?

Can we loan our son $5000 without charging interest?

Q: What type of property is a promissory note?

A promissory note is not a type of property itself but rather a financial instrument that represents a promise to pay a debt. It can be associated with various types of property, including real estate, personal loans, or other financial agreements. The note can be sold or transferred, making it a negotiable instrument.

Q: What is a promissory note that requires the borrower to repay the loan?

A promissory note that requires the borrower to repay the loan includes specific terms for repayment, such as the amount borrowed, payment schedule, and any interest rate. It legally binds the borrower to repay the loan according to these terms, providing the lender with a means to enforce repayment if necessary.

Full question:

We are about to loan our son $5000 for a down payment on a property in Kingston, OH (Ross county) We want to use a promissory note for the loan. We don't want to charge him interest. We simply want him to pay us back in monthly payments of $100 until paid. I have read that this may present a problem with the IRS. Is there a way around this?

Category: Debts and Credit
Subcategory: Promissory Notes
Date: 04/07/2025
State: Ohio

Answer:

Using a promissory note for a family loan is a good idea to avoid it being seen as a gift by the IRS. While you can loan your son $5,000 without charging interest, it’s generally advisable to include an interest rate. The amount of $5,000 should not trigger gift tax issues, as the current federal annual exclusion is $13,000 for individual gifts or $26,000 for gifts by spouses. Gift tax only applies after giving away $1,000,000 in your lifetime.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

What is a promissory loan note?

A promissory loan note is a legal document in which one party promises to pay a specified amount of money to another party under agreed-upon terms. It outlines the loan amount, repayment schedule, and any interest rate, if applicable. This document serves as evidence of the debt and can be enforced in court if necessary.

What is a purchase money promissory note?

A purchase money promissory note is a specific type of promissory note used to finance the purchase of property. It is typically issued by the buyer to the seller as part of the transaction, allowing the buyer to pay for the property over time. This note includes details about the loan amount, repayment terms, and any interest charged.