2nd mortgage interest deductible?

[joepar2567]

What is the name of your state?I am considering loaning my daughter 20% of her home loan for a down payment in Colorado. I would like to use a secured promissary note with a Deed of trust to protect my money. This will be an interest only term loan at the AFR rate.

Will she be able to deduct this interest paid to me from her income tax?

Do you know if I need to use the long term AFR or can I use the blended AFR for this type of family loan?

 

[Snipes5]

If you do the loan the same as you would to an unrelated party, yes, she can deduct the interest. You will also need to claim the income on your return, on Schedule B, as interest received.

5% is a reasonable interest rate to use right now and still have it classifed as an ordinary loan, but that is the lowest I would go with.

Snipes