Tags: Interest Rates, QuickBooks Bookkeeping, Sarasota CPA, Tax Planning
Want Better Interest Rates?
Interest rates are rising. Want a pro’s way to find better interest rates?
You can help a family member buy a home. Generally, by making a loan to family you can ensure that you both benefit from a tax-smart loan structure.
Current national average interest rates for 30-year and 15-year fixed-rate mortgages at 6.81 percent and 6.13 percent, respectively. Comparatively, family loans can offer a much more attractive alternative.
By charging the Applicable Federal Rate (AFR) as interest, you can give the borrower a good deal without giving yourself a tax headache.
The IRS issues new AFRs for term loans every month. Most recent 2023 rates are as follows:
• A Short-term loan (three years or less): 4.86 %
• Or a Mid-term loan (over three years but not more than nine years): 4.15 %
• Or Long-term loan (over nine years): 4.02 %
Charging at least the AFR for a term loan to a family member allows you to avoid federal income tax and federal gift tax complications.
Conversely, if you charge less than the AFR, you may need to navigate some tax complications. Two tax-law exceptions, the $10,000 and $100,000 loopholes, can help.
It is crucial to document the loan with a written promissory note. Also, you must secure it with the borrower’s home for them to claim deductions for qualified residence interest expenses. Make sure the borrower signs the note. The note needs to include details such as the interest rate, a schedule of interest and principal payments, and any security or collateral for the loan.
Chiefly family loans can provide homebuyers with better interest rates than commercial lenders offer, especially if family members charge the AFR. Lastly, remember to consider the loan terms and tax consequences when structuring the loan.
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Indeed, Sterling Tax and Accounting is here to help your business with tax planning! Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket. If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.
Additionally, you can learn how to proactively save on taxes by scheduling a call with our tax planning specialists.
Our tax planning, accounting & business services help you stay on track. Above all, Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.
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