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Old 03-18-2014, 10:04 PM
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Do I have to report loan to relative in a foreign country?

In 2013, I made a rather large loan to my relative residing in another country with no ties to the U.S.

The loan was wired from my bank account to my relative's bank account in the foreign country. Since the loan is more than $10,000.00 I am pretty sure my bank had to report it to the IRS.

I do not receive any interest from this loan, my question is, do I have to report this loan anywhere in my tax return? Or is there a specific form I need to fill out? Thanks!



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Old 03-19-2014, 03:51 AM
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Originally Posted by dzlove98 View Post

#1; Since the loan is more than $10,000.00 I am pretty sure my bank had to report it to the IRS.

#2;I do not receive any interest from this loan, my question is, do I have to report this loan anywhere in my tax return? Or is there a specific form I need to fill out? Thanks!
#1;correct;the IRS requires all individuals and businesses to report transactions totaling $10K or more, including personal wire transfers.Your bank automatically reports it(as the amount of the wire transfer exceeds $10K(or equal to $10K)) a year to dept of treaury of US.


#2;in general, The IRS taxes interest earned through personal loans as self-employment income.however,so long as you , I guess, consider the loan a gift(as you said,you do not receive any interest from this loan), An interest-free loan or gift to help a family member or friend could have federal income tax consequences, depending on the amount. even though you don't charge interest on a loan, as the amount is over $10K the IRS may require you to impute interest. You would then have to report the interest on your income tax return on 1040 line 8a, even if you don't collect it.
The interest rate imputed on the loan would be the applicable federal rate which is tied to the Treasury bill rates. The IRS publishes these rates underIndex of Applicable Federal Rates Rulings on its website. as you lend money to a family member and charge no or interest at a rate that is below the market rate, you could also have to report interest income at the imputed AFR rate. But the rules for loans at below-market interest rates do not apply for loans of $10K or less. They also do not apply to loans for which the proceeds are not directly used to buy stocks or bonds, or other income-producing property. So a loan of less than $10K to help out a family member during times of economic difficulties would generally not incur any tax consequences.

If the loan is for more than $10K but not more than $100K, the IRS could impute interest on either a tax-free or below-market interest loan. If the borrower has more than $1K in net investment income, which includes interest, dividends and short-term capital gains, you would have to report interest income in an amount equal to the borrower's net investment income, even if that amount is more or less than the imputed interest that would apply.

For example, suppose you make a $50K loan to a family member, who uses the loan to make investments and earns $2K. If the AFR is 3%, the imputed interest on the loan would be $1.5K. You would have to report interest income of $2K, which is the investment income earned by the borrower. On the other hand, if the borrower earned $1K on investments, you would report interest income of $1K, and not the imputed interest of $1.5K.However, this rule doesn't apply to your relative overseas.

You could also be liable for federal gift tax if you either make a gift to a family member. There is an exclusion of $14K for 2014 for each gift to each done. So if your gift is for less than $14K you would not owe any gift tax. If you are married both you and your spouse can each give up to $14K per year, for a total of $28K. The same exclusion applies to interest you forgive on a loan. it is recommended that you document a loan to avoid an assumption by the IRS that there was no intent to repay the loan, making it a gift subject to gift tax if the amount is over $14K.



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