Difficult Tax/Estate Question

I loaned my son $ 100,000 to start a small construction business. He is doing well enough to take care of his family and pay me interest on the note (9 yrs/AFR). However I doubt if he'll ever be able to pay back any of the principal. Additionally I give him a check for the yearly gift tax exclusion of $ 13,000. I would like to just forgive the loan but it would come out of my lifetime gift tax exemption. Does anyone see another solution ? I understand this is a common problem. Thanks Ron CPA

Reply to
Ron
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If either he or you is married, the exclusion is $26,000, so you could forgive another $13,000. (If both, you can forgive $39,000.)

Seth

Reply to
Seth

What if your son gave you shares in exchange for the cash you loaned him? Then that 100k cash is not a loan, but an investment. It should be marked as section 1244 stock, which I think is only available to C corporations. Then you can deduct 50k/100k of the loss as an ordinary loss.

Perhaps if the original loan of 100k was done a long time ago you can still infuse the company with another 100k loan, which they can use to pay off the original loan.

If both parties are married, then isn't the maximum not 39k but 52k.

Anyone know what gift tax amount will be in 2010?

Reply to
removeps-groups

why does he not use the $13,000 per year to pay you back?

You could give another $13,000 per year to his wife, one of both of the $13,000 used to pay you back.

Your wife could give him and his wife each $13,000 per year, which could also be used to pay you back.

Or, could you forgive $13,000 in principal each year (and not give cash)?

Reply to
Wallace

Less the $13k already given, is $39k.

Seth

Reply to
Seth

You mean $52,000. And that's each year. So parents could forgive half on December 31, 2009, and the balance on January 1, 2010.

Reply to
Stuart A. Bronstein

Good idea. He has to be careful, though, to leave himself the option not to forgive any amount in any given year. If there is evidence that a forgiveness plan is set up that locks the parent in to a schedule, the IRS will treat it as a gift all in the year the plan was set up.

Reply to
Stuart A. Bronstein

Stu, it is comments like yours that makes MTM such a valuable resource. Much appreciated for possible future reference. Gotta make sure all them I's are dotted!

(hmm, my spell checker wanted to change Stu to "stud".)

Reply to
Wallace

In total, yes.

OP wrote: "Additionally I give him a check for the yearly gift tax exclusion of $ 13,000." So I was stating the amount of loan forgiveness still available (under the assumption that the check had already been given this year).

Seth

Reply to
Seth

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