5

I have a friend who is willing to lend me some money (about 40k dollars), since I am not financially well.

We are foreigners studying and working in the U.S. (F1 and H1 visas). We report taxes separately each year.

  • Does the money lending between us need to be reported in our tax reports?
  • Will he be taxed more because of lending the money to me?
  • Will I be taxed more because of borrowing the money from him?
  • How shall we report it so as to minimize our taxes?
7

Does the money lending between us need to be reported in our tax reports?

No.

Will he be taxed more because of lending the money to me?

Yes.

Will I be taxed more because of borrowing the money from him?

No.

How shall we report it so as to minimize our taxes?

You cannot.


What is reported on your tax returns is the income. A loan is not an income, so nothing gets reported. However, when you repay the loan, assuming it has interest, the lender has income: the interest.

Interest income is reported on schedule B of the regular (1040/1040A) tax return (or, in the case of non-resident for tax purposes, on line 9 of 1040NR). It is taxed as ordinary income, and since you're both foreigners - the lender should look into the treaty provisions that might be relevant. Generally it is not exempt from taxable income based on treaty exemptions for students (which is only for earned income), but there might be other rules in the treaty regarding interest income.

If there's no (fair market or higher) interest, then there's "assumed" interest at the IRS mandated rates, which is considered a gift. If it amounts to more than the yearly gift exemption, the lender may be liable for gift tax (depending on the lender's and your status, and again - see treaties).

"Loan" without an obligation to repay and without actual repaying will also be considered a gift for tax purposes.

If the lender has no intentions of having the loan repaid (i.e.: making a gift), it will be better to pay your tuition bills instead of actually giving you the money: tuition is exempt from gift tax.

Talk to a CPA/EA licensed in your state for a proper tax advice on this issue.

  • Thanks! Actually he may either lend it to me, or give it to me without requiring me to pay back. In the latter case, will each of us have to report and pay taxes for the money giving? – Ben Oct 15 '13 at 23:31
  • If he gives it to you, he may be liable for gift taxes if it exceeds the current threshold for that (currently around $17,000 per person per person, if I remember correctly.) – keshlam Feb 1 '16 at 17:00

protected by Community Dec 2 '16 at 21:36

Thank you for your interest in this question. Because it has attracted low-quality or spam answers that had to be removed, posting an answer now requires 10 reputation on this site (the association bonus does not count).

Would you like to answer one of these unanswered questions instead?

Not the answer you're looking for? Browse other questions tagged or ask your own question.