Tax implications of loan to daughter

Yes, you should treat it just like any other loan. You need to make certain that the interest rate is the same as or higher than the applicable federal rate, but based on what you say that shouldn't be a problem.

I don't do returns, but I'd think that would be appropriate.

Since you would be making the payment for her on condition that she pay you back with interest, it's definitely not a gift on either side of the transaction. Now if you agreed to lend her the money with no interest, or just give it to her without her agreement to pay you back, then it might be a loan to one extent or another.

Even unwritten contracts are enforceable in court. So if you were willing to sue her if she didn't pay you, she couldn't just take the money and run.

I am not a tax pro so do not rely upon what I say here without independent confirmation.

I have a similar situation with my son whose mortgage I carry. There is an IRS publication that gives the minimum tax rate you can charge and not have part of the loan considered to be a gift. since initiated, the market interest has been dropping, and we just had a second modification by which I reduced that interest rate for him.

He was asked by the IRS to justify his mortgage interest deduction. He showed them his stack of receipts that I give him upon payment. I report the interest to the IRS as income. Since then, the IRS has given neither of us any problem. Except for the receipts and signes loan modifications, we exchange no paper work, including 1099s

If the loan is under 10k then you don't need to charge any interest -- no gift tax considerations. Write up the terms of the loan include principal, interest rate (0% is possible here), length, what parents can do if child defaults or is late with payment. If the child is not able to pay back the loan and you are unable to collect, then you can deduct the loan balance. If the loan is more than 10k but less than

100k then there are other rules. If the loan is more than 100k you must charge the AFR rate (a minimum interest rate that changes each month) in order to avoid tax on imputed income.

In this case, we would be charging her nonzero interest. The rate we would charge is lower than what she pays at present (and lower than what would be considered market rate), but more than what we could make on a short-term CD. The original question had to do with tax-reporting implications. She gets no tax break from a car loan, so the only possible issue from her end would be whether she would actually be considered as earning income by paying less than market rate on a loan. The question for my wife and me was whether we would treat our tax reporting of the interest income any differently from the interest we report from a bank. Since we are all related parties and were intending to do this informally without paperwork, I wondered if any of this could be considered as nontaxable gifts between family members (no tax implications considering the loan amount is less than the gift limit), rather than a loan and repayments with interest. The response I got suggested this would be considered a loan like any other. Assuming we treat this like any other interest income, do we have to issue any kind of 1099 to our daughter (or vice versa)?

This loan is taxable. Report the interest on your Schedule B. She gets no deduction for interest paid, unless she used part of her car for business.