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Old 10-11-2017, 07:58 AM
 
4 posts, read 2,330 times
Reputation: 15

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Hello, my daughter went through a divorce and we gave her a loan to buy out her ex-husbands share of the property. We did not do it as a gift. We would like her to be able to take off the interest that she is paying us on her income taxes. I believe we have to formally record the loan for her to be able to do that. How do I go about recording a loan?
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Old 10-11-2017, 08:10 AM
 
Location: 89052 & 75206
8,145 posts, read 8,343,862 times
Reputation: 20075
I loaned my son and his wife the money to buy a house in Tarrant county. I obtained a lien form on-line and we all signed and had it notarized. Then I took it to the country clerk's office and had it recorded.

About 10 years later he paid off the loan and so I got another online release of lien form and we did the same signing/notarizing. I then took that form down to the country clerk's office and released his lien. I think the whole process (including online forms) was under $75.

Dallas County clerk's office would be the place you record your lien.

However, you do NOT have to record the loan in order to charge her interest and for her to deduct it on taxes. You simply have to report your income and issue her an annual statement indicating the payments and interest. Your tax accountant can do this or Turbo Tax for home and business should also have that capability. In our case, I gifted my son and his wife each the interest annually and their interest was in compliance with the IRS limits. But I also did claim the interest received.....I charged the same as I would get in the lowest CD available at the time, so my impact was minimal since I had to claim the interest as income. If I didn't charge interest, the whole mortgage would have been considered a gift and that would have been an IRS nightmare. Yes, I got professional tax advise at that time.....

Last edited by WorldKlas; 10-11-2017 at 08:20 AM..
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Old 10-26-2017, 02:52 PM
 
4 posts, read 2,330 times
Reputation: 15
Default Recording a loan on my daughter's property

Thank you! That is exactly what we are doing too. I will take it down to the county clerk's office tomorrow!

Have a great day.

Roberta
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Old 10-26-2017, 05:24 PM
 
964 posts, read 877,079 times
Reputation: 759
Wow. The day I ever loan money to my children we be a cold day in hell. Then charge interest to them as well? I will be proud to say I will never make a dime off my children ever.

If I can't ever just give my kids money I will find a way to make more.
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Old 10-26-2017, 06:04 PM
 
Location: 89052 & 75206
8,145 posts, read 8,343,862 times
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Quote:
Originally Posted by kyam11 View Post
Wow. The day I ever loan money to my children we be a cold day in hell. Then charge interest to them as well? I will be proud to say I will never make a dime off my children ever.

If I can't ever just give my kids money I will find a way to make more.
If you read the whole explanation you’d understand that the parent who gives a child all the money to buy a house will cause the child to have a whopping tax bill because the max someone can get from another individual as a gift without paying taxes has an annual limit. This year its about $14K.

But the parent can set up a mortgage, then charge interest (the parent then pays taxes on the “investment profit”) and then GIFT to the child (and in our case also the daughter in law) the amount each year (up to $14K tax free each) the child then can not have a tax liability and pay no payments.

Sorry if you think I was being selfish. I thought I was doing my son and his family a great deed.
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Old 10-26-2017, 06:14 PM
 
Location: Raleigh
8,166 posts, read 8,522,688 times
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Quote:
Originally Posted by kyam11 View Post
Wow. The day I ever loan money to my children we be a cold day in hell. Then charge interest to them as well? I will be proud to say I will never make a dime off my children ever.
If I can't ever just give my kids money I will find a way to make more.
You and your spouse (if there is one) can each give a child about $14,000 a year as a gift. Beyond that you need tax advice to be lawful. If you give more you have to pay tax on it as a gift.
There are complexities, of course.
"I Am Not A Lawyer"
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Old 10-26-2017, 06:17 PM
 
Location: Raleigh
8,166 posts, read 8,522,688 times
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Quote:
Originally Posted by WorldKlas View Post
<>Sorry if you think I was being selfish. I thought I was doing my son and his family a great deed.
You were doing the exact right and generous thing. It's also important if Medicaid ever becomes part of your long term care.
BTW, if I understand correctly (and there is no reason to suspect I do ) the tax liability is on the donor, not the recipient. It's an inheritance tax issue.
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Old 10-26-2017, 06:22 PM
 
Location: Raleigh
8,166 posts, read 8,522,688 times
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Quote:
Originally Posted by rbrady View Post
Hello, my daughter went through a divorce and we gave her a loan to buy out her ex-husbands share of the property. We did not do it as a gift. We would like her to be able to take off the interest that she is paying us on her income taxes. I believe we have to formally record the loan for her to be able to do that. How do I go about recording a loan?
Sounds right. Also, as pointed out elsewhere in this thread, you can regift the interest to her up to $14,000 per year.
If she is also deducting the interest from her Federal and State Taxes you may want to consult a professional. It sounds okay to me, but IANAL. The transactions would be separate, but you know those IRS guys, eh?
No one is obliged to pay more tax than they must.
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Old 10-26-2017, 06:25 PM
 
964 posts, read 877,079 times
Reputation: 759
Simply not true.

https://www.google.com/amp/www.nexta...ure-alive/amp/
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Old 10-26-2017, 07:05 PM
 
Location: Raleigh
8,166 posts, read 8,522,688 times
Reputation: 10147
Quote:
Originally Posted by kyam11 View Post
Because you did not quote which post you responded to, it is not clear which post you think is not true.
So since I posted about the $14,000 limitation, I 'll respond to you simply as, "It's complicated" and say that is why a person needs professional advice. As I said, I am not a lawyer nor a tax accountant. If you are in fact a tax accountant I'll take your cite of a financial consultant as an untaxed gift.
Gifts and inheritance taxes is an area that probably does not go away with simplification of the tax code because sometimes it is hard to define income.
Thanks.
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