Discussion:Gift of Loan Proceeds
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Discussion Forum Index --> Advanced Tax Questions --> Gift of Loan Proceeds
Discussion Forum Index --> Tax Questions --> Gift of Loan Proceeds
68lemonpeeler (talk|edits) said: | 30 June 2008 |
| I have a new client that gifted home equity line of credit proceeds to his daughter. Daughter used these proceeds, approximately $150,000, to purchase a home. Would the interest the father is paying on his line of credit be considered a gift to the daughter as well? | |
| 30 June 2008 | |
| I don't believe so, because SHE doesn't owe the loan back, HE does. | |
| 30 June 2008 | |
| you're reading questions into the OP that aren't already there, Wes.
LOL | |
| 30 June 2008 | |
| plus you are forgetting about the other $200,000 LOC that already exists before he borrowed $150K more. Hey if you can assume, I can too. LOL even more. | |
| 3 July 2008 | |
| I'll bet Dad is not charging his daughter interest on the amount that she borrowed on the LOC. The Sec. 7872 below market rate interest rules would kick in and there would be a gift of interest. Gift tax returns should be filed if total gifts to daughter exceed $12,000. | |
| July 3, 2008 | |
| She didn't borrow anything. He borrowed money and gave her cash. | |
TaxMan6969 (talk|edits) said: | 4 July 2008 |
| No, the interest is not a gift. 7872 does not apply because there is no loan between the father and the daughter. This is a $150k gift from father to daughter. Now if daughter is required to pay the money back to Dad then 7872 might apply but I'm pretty sure there's a de minimis exception in there. | |
| 4 July 2008 | |
| Father can deduct interest on $100,000 from the LOC (presuming no other existing equity loan). Tracing rules determine the deductiblility of the interest on the remaining $50,000. Since it was used for personal purposes, the interest is non-deductible personal interest. The interest is his obligation and has no connection to his daughter.
That is the only taxable event except for the filing of Form 709. | |
| 6 July 2008 | |
| If the understanding is that the daughter will not be responsible for repaying the $150,000, then I would agree that Sec. 7872 would not apply. | |
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