Making a Loan to Family or Friends

Making a Loan to Family or Friends? Don't Overlook the Tax Rules

Making a personal loan to a family member or friend can create unexpected tax issues. If the loan carries little or no interest, the IRS might treat all or part of it as a taxable gift under the below-market loan rules. To pass muster with the IRS, your loan should be backed by a written promissory note that includes the interest rate, a schedule showing dates and amounts for interest and principal payments, and the security or collateral, if any. Charge an interest rate that equals or exceeds the applicable federal rates set by the IRS. They potentially change each month. For July 2026, they range from 3.93% to 4.98%, depending on the loan length and compounding period. Contact us for details.