Is interest paid against a private loan for a rental property deductible?

My two relatives loaned me money to purchase a rental property a year ago, and I should pay them interest at 2% of the loan amount once a year.

- Can the interest be listed as expense in Schedule E of my tax retun?

- I do keep documents of money flow and a loan contract between us; What other things I should concern?

- I haven't made the recordation yet, but can officially recorde the lenders as beneficiaries on a trust deed of this propery. Will it be too late now to do so?

- If one of the relative is a foreigner living abroad, do I have to handle it differently?


Do you meann that we can not pay int less than the min rate to the lender? Can you show me the relevant regulations. Thanks.

4 Answers

  • Anonymous
    1 decade ago
    Favorite Answer

    Your parents aren't charging you enough interest.

    Even in 12/2008, the minimum AFR (federal rate) for a long term loan was 4.45%. BY LAW, if your relatives loaned you more than $10,000, they have to impute the rest of the interest and include it in their income. Because they have to include it in income, you can deduct it as well.

    Since they are NOT banks, they do not issue a 1098. Since YOU are not a bank, you do not issue them a 1099-INT.

    Because one of them is a foreigner, you must withhold 30% of each interest payment and issue a 1042-S to them at the end of the year. (With the 30% properly withheld, they don't have to file.)

  • trimpe
    Lv 4
    4 years ago

    sure whether that's a valid loan and you have a written loan contract you could deduct the interest. Your chum the lender needs to offer you a w-2 for for the quantity of the interest and he will then could teach it as earnings and pay taxes on it.

  • tro
    Lv 7
    1 decade ago

    if you have a written note payable between the parties with all the provisions of the contract clearly stated, signed by all parties yes

    you should issue them 1099 I's each year as well to indicate your part of the obligation that has been satisfied

  • 5 years ago
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