Intrafamily Loans—Utility Remains


For many years prior to 1984, a high-income taxpayer could loan money to a lower-income tax payer without charging interest on the loan and the loan terms would be respected on their face. For example, a parent could loan money to his or her child without charging interest. The child would consequently have use of the money without the requirement of paying interest back to the parent. The child could use that money to invest in income producing assets. The child could earn income, which would be taxable to the child at his or her lower income tax rate and the parent would earn no income on the loan because there would be no interest charged to the child.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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