Ask Terry Questions Loaning money to my son for his farm.

Loaning money to my son for his farm.

By Terry Savage on March 12, 2020 | Wild Card

My son started a Certified natural grown vegetable farm a few years ago he has a little over 2 acres, he now has a chance to buy his neighbor’s two acres. I offered to pay for it as long as he pays me back whenever he sells. Is it best to put the land in his name of in my name. Wondered which way makes it easier on our and his taxes?

Terry Says

Because this is a loan to his business, (vs a personal loan or a gift to buy a home, for example), this loan should be properly documented. There should be a fixed term for the loan. There must be an implied rate of interest, but it could be structured as an interest-only loan. Then he could deduct the small amount of interest he pays you ever year. And if he defaults, you can take a tax-loss deduction. Several sites online offer the correct form for loans between family members. I suggest you read this great article from CreditKarma before proceeding.
I definitely think a loan is the way to go — or an outright gift, which would require a gift tax return.



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