Is this interest income that you received?
What is your total taxable income and filing status?
Interest is taxed at regular tax rates.The tax on interest income will depend on your overall tax bracket.
In order to avoid this in future, you might want to give the loan amount as a gift to the person so that you do not receive any interest.
Normally a person can give up to the annual exclusion amount $12000 for 2007 to a person, every year ($ 24000 in 2007 if spouses joins in for the gift) without facing any gift taxes and note that such amounts do not count as part of your $1,000,000 lifetime total.
Further, IRS allows a person to give up to $1,000,000 in gifts, total, in their lifetime, before they start owing the gift tax. (This gift is not per (donee)person but its a per donor limit). So you can make gifts that are worth up to a million bucks during your lifetime without paying the gift tax. . Even if you do not owe a gift tax because you have not reached the $1,000,000 limit, you are still required to file gift tax return if you made a gift that does not qualify as excludable.
Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
Taxes depends on your overall tax bracket. To answer your question, I need to know your total taxable income including the interest income, your filing status and the number of dependents you are claiming.