From: Brooklyn, NY

Dear TaxMama,

I read about family loans on Smartmoney.com (which laid it out fairly clearly). However, they didn't take into account a situation where the lender would not be an American citizen.

Therefore, I bring the question unto you. Does a family loan from a foreign country's citizen affect taxes and how to report the transaction so as to minimize the IRS trying to tax imaginary imputed incomes and suchlike?

Thanks for any help

Richard

 

 

Hi Richard

First of all, thanks for letting me know about the problem.

Now, to your question.

There's no real problem where the lender is, or the source of the money.

All you need is a good paperwork trail - and proper execution. And of course, the funds defined in terms of US dollars.

So, have the parties write up proper loan documents, showing the amount of the loan, the interest rate, the amount of each payment and due dates.

Make sure the American borrower meets the obligation, making the monthly payments the way they would on any US mortgage.

One other thing that I would do - ensure that IRS doesn't decide that large sum of money was income, when it drops into the bank account. Be sure there is paperwork with the fund transfer that includes the word 'loan'.

Best wishes,
Eva Rosenberg, MBA, EA