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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4416
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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Dear Bill,( finance ) I HAD GIVEN $ 100,000

Resolved Question:

Dear Bill,( finance ) I HAD GIVEN $ 100,000 ABOUT 7 YEARS AGO. SHE WAS TO GIVE BACK AFTER SOMETIME. SHE LIVES IN INDIA. I DID'NT EXPECT ANYTHING IN RETURN. SHE COULD NOT RETURN THE MONEY. BUT IN PLACE OF THAT SHE AGREED TO GIVE ME ABOUT 12% INTEREST.WE AGREED TO IT. SINCE IT WAS GOOD RETURNS I ASKED HER TO KEEP THE PRINCIPAL AND LET THE INTEREST ACCRUE. SHE PAID 30% TAX TO INDIAN IRS EACH YEAR AND HAS BEEN RENVESTING THE INTEREST SOMEWHREIN INDIA. QUESTION:- IF AND WHEN I GET THE MONEY BACK WILL I OWE TAXES AGAIN TO U.S. GOVT ? LIKE WISE IF WE HELP OUR CHILDREN OR OTHER 1ST DEGREE RELATIVES WITH MONEY INTERST FREE FOR ANY PURPOSE WE WOULD OWE ANY TAXES TO IRS ? THANK YOU, XXXXX XXXXX xxxx

Submitted: 3 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 3 years ago.
Dear Dinesh,

It seems the expert you requested is not available at this moment. Let me try and help you instead.

This question is little different than your first one. You are asking about Interest free loans, and its tax consequences.

YES, you can help your first family members. But before you give out money, you need to make sure whether you are giving away as gift OR if your are lending them as a loan.

Let me explain why. If you are lending them as loan, whenever you will receive it back will you will have to pay tax on the interest earned. Even if you make out interest free loan, IRS will tax you. If you make a loan to a family member and charge zero interest, you may face unfavorable and complicated tax rules. But you can avoid tax-law complications if you charge an interest rate that at least equals the IRS-approved applicable federal rate (AFR). Because AFRs are almost unbelievably low right now, you can be nice to yourself by charging the AFR while still being plenty nice to the borrowing family member as well. AFT currently hovers around 1.07% for "mid-term" loans over three years but not over nine years.

Coming to the second part, if you give away money, with no intentions of getting it back merely with an intention to help your close / first family members, you can gift $14,000 if single or $28,000 if married without incurring any tax liability. However, you can gift $100,000 but that you will have to use your $5 million lifetime exemption limits so far as additional amount goes. You will still not incur any tax liability.

I am sure this would help.

You may please leave a positive rating if this helps. Alternatively, please feel absolutely free to revert with further queries and I shall be more than happy to keep assisting you.

Warm Regards
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4416
Experience: Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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