Gift loan to my foreign friend

[nicholas55]

What is the name of your state? Texas

According to IRS publication 550 https://www.irs.gov/pub/irs-pdf/p550.pdf some loans are "without significant tax effect" and gift loans of less than $10,000 are of that kind, as long as the money isn't used to buy income-producing assets. I lend around $8000, without any interest, to my friend in Brazil three years back when he visited USA. Now he paid back that $8000 by sending me a check which I deposited in my financial institution. He did not use that money to buy any income producing assets. I did not report this loan in my tax returns. Will this create any problem from IRS?

 

[LdiJ]

What is the name of your state? Texas

According to IRS publication 550 https://www.irs.gov/pub/irs-pdf/p550.pdf some loans are "without significant tax effect" and gift loans of less than $10,000 are of that kind, as long as the money isn't used to buy income-producing assets. I lend around $8000, without any interest, to my friend in Brazil three years back when he visited USA. Now he paid back that $8000 by sending me a check which I deposited in my financial institution. He did not use that money to buy any income producing assets. I did not report this loan in my tax returns. Will this create any problem from IRS?

It is unlikely to raise any eyebrows. However, should you be questioned on it, then simply tell the truth.

 

[Taxing Matters]

What is the name of your state? Texas

According to IRS publication 550 https://www.irs.gov/pub/irs-pdf/p550.pdf some loans are "without significant tax effect" and gift loans of less than $10,000 are of that kind, as long as the money isn't used to buy income-producing assets. I lend around $8000, without any interest, to my friend in Brazil three years back when he visited USA. Now he paid back that $8000 by sending me a check which I deposited in my financial institution. He did not use that money to buy any income producing assets. I did not report this loan in my tax returns. Will this create any problem from IRS?

The bank might not have reported the transaction to the Treasury. Even if it did, you might not hear about it from the IRS. If by chance you are contacted then contact the IRS and tell the agency what you said above. I don't see it as something that will create some huge liability for you. Even if the IRS considered it a taxable loan, only the interest would be taxable. As you did not collect any interest, the IRS would impute interest at the applicable federal rate (AFR) which, until about last summer was very low. So the imputed interest wouldn't be a whole lot and only a fraction of that would end being tax you'd have to pay (and that depends on your marginal tax rate).

 

[nicholas55]

So many thanks for your information!