My brother got an amazing loan to buy his house from dad for $200,000 but he only pays $150 a month ($100 capital + $50 interest). My question is, is this legal? Doesn't the IRS see this as more of a gift than a loan? What is the minimum amount he should pay a month? He says it's a 30 year loan.
My question is ...is this legal? Doesn't the irs see this as more of a gift than a loan?
Yes, it's legal, but the IRS views very low interest rates as a gift. They'll take the acceptable minimum rate (currently ~3%) and consider the difference between rate charged and that rate as a gift. Similarly, if he is forgiving loan principal over time, that is considered gift as well.
In this case, the minimum interest is well below the annual gift tax exclusion ($15,000 for 2018), so unless he's also giving other gifts there is no gift tax liability.
What is the minimum amount he should pay a month?
A traditional $200k 30-year with a 0.3% rate would come out to a payment of ~$580/month, but we don't know the specifics, it could be that they intend to increase payment amounts over time, so they should just pay whatever they agreed to.
The IRS has rules regarding "Below Market Loans"
Below-Market Loans If you make a below-market gift or demand loan, you must report as interest income any forgone interest (defined later) from that loan. The below-market loan rules and exceptions are described in this section. For more information, see section 7872 of the Internal Revenue Code and its regulations.
If you receive a below-market loan, you may be able to deduct the forgone interest as well as any interest you actually paid, but not if it is personal interest.
The link (to read more) is 60 or so lines down the page or do a CTRL-F on "Below Market Loans"