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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11140
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am a US citizen that has borrowed money, (with interests)

Customer Question

I am a US citizen that has borrowed money, (with interests) from a foreign friend (he is not in the business of making loans). 1) do I need to pay the IRS a percentage of the loan interests that I have paid? 2) What percentage? 3) Do I need to submit a
special form to the IRS?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

...

I hold a JD (Juris Doctorate, a doctoral degree in the law), concentration in Tax Law & Corporate law, an MBA (specialization in finance & tax), and BBA from Mercer University's Stetson School of Business and Economics, as well as CFP and CRPS designations.

I can help here

...

Expert:  Lane replied 1 year ago.

On your first question, no ... interest that you pay is income to the LENDER not to you

Expert:  Lane replied 1 year ago.

If the lender here (the person making the loan, lending the money) were a US person, he/she should be charging interest at (at least) the Applicable Federal Rate

Expert:  Lane replied 1 year ago.

Otherwise IRS could say that this is a below market loan and impute interest and charge taxes on the interest AS IF the person had charged that interest ... However, if this person is not a US person (citizen, green card holder or resident) then IRS wouldd have no jurisdiction there

Expert:  Lane replied 1 year ago.

Finally, the BORROWER never pays tax on proceeds borrowed, because the dollars will paid back. Loan proceeds to the borrower are not taxable ... and money loaned is not taxed to the lender ... only the interest ON the loan, the profit, if you will, is taxed to the lender... IF that lender is a US person.

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If the person is a non-resident alien, I cannot speak to what this person's taxing authority may require, in terms of reporting the interest

Expert:  Lane replied 1 year ago.

Let me know if you have questions

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Hope this has helped

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If this HAS helped, (and you don't have any other questions on this), I'd really appreciate a positive rating (using those stars on your screen) … That's the only way I'll be credited with a portion of what you've paid JustAnswer.com

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Thank you,

Lane

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