Discussion:Loan to a relative for an investment
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Revision as of 21:42, 20 April 2006
Discussion Forum Index --> Tax Questions --> Loan to a relative for an investment
| 20 April 2006 | |
| Joe, the client, has a cousin (Ted) that works at a private equity group. Ted has been given the opportunity to invest in a company that "should" result in a great return within 4 years. Ted approached Joe with an offer for Joe indirectly invest in this venture. Joe wants to send $35k to Ted. Ted will "call it his own" (while making the investment on behalf of Joe) and make the investment in the venture. Lets assume they cash out of the deal in year 4 and the $35k is now worth $100k.
How I would think it would go down.... Joe gives Ted $35k as a gift. $35k - $12k exclusion = $23k x gift tax rate = gift tax liability. File form 709 and use $23k of the Unified Credit. Then.... in, say, 4 years (when the investment is cashed out.... Ted would "gift" the $100k back to Joe. Ted would file a form 709 for the $100k - $12k = $88k...and use the Unified Credit for the gift back. If Joe felt guilt about using up some of Ted's Unified Credit, Ted could just not use the credit, make the gift back "net of the gift tax" effect (out of the $100k proceeds, and then pay the gift tax. Is this correct thinking? Should I consider more the "loan" route? | |
