Should A Parent’s Financial Help To Children Come In The Form Of A Loan Or A Gift?

By Tim Grant
Pittsburgh Post-Gazette

WWR Article Summary (tl;dr) Ahmie Baum, managing director of wealth management at UBS Financial Services in Pittsburgh says there is no right or wrong path in terms of a parent providing a loan or choosing to offer a gift to their child. There are just complications.


Parents often want to help their adult children who need a financial boost, and it frequently comes down to a choice of whether the help should be in the form of a gift or a loan.

There could be tax implications with either choice, depending on the dollar amounts involved.

The Internal Revenue Service is not concerned with most personal loans or gifts that a parent makes to a child, but when the dollar amount exceeds $14,000, the parent must file a gift tax return. And parents who loan a child as much money as it would take to purchase a home are required to charge interest on the loan or face penalties imposed by the IRS.

Pittsburgh certified public accountant, Howard Davis, president of Davis, Davis & Associates, said he has clients who make loans to their children. The loan documents may either have the child paying interest only, or principal and interest. Or, the child doesn’t pay anything at all.

For September 2016, the minimum interest rate that the federal government will allow is 0.61 percent for loans up to three years; 1.22 percent for loans three to nine years; and 1.88 percent for loans lasting nine years or more.

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