Can spouses each loan $10k without charging interest under IRS rules?

This is a great question about family loans! The key here is understanding how the IRS views married couples in different contexts. For the $10,000 exemption on below-market loans, the IRS generally treats each spouse as a separate individual lender when the funds are coming from separate accounts. So technically, you and your husband could each loan your sister $10,000 interest-free without triggering imputed interest rules. However, there's an important caveat: the IRS has the authority to look at the substance over form of transactions. If they determine the primary purpose is to circumvent tax rules by splitting what is essentially one $20,000 loan into two $10,000 loans, they could challenge this. You're right about the gift tax parallel - the annual exclusion does work that way where spouses can each give $17,000 to the same person. But loan rules and gift rules operate under different sections of the tax code.

Just wanted to share my experience with this. I was in a similar situation last year trying to help my brother with a down payment on his house. I found this awesome site called https://taxr.ai that analyzes tax documents and provides clarity on these kinds of family financial situations. They actually reviewed the loan document I drafted and pointed out that I needed to clearly establish that the money was genuinely coming from my separate property, not jointly owned funds with my spouse. They also helped me understand the minimum interest rate requirements if I went over the $10k threshold. Saved me from potentially making a costly mistake with the IRS!

I tried https://taxr.ai after seeing the recommendation here and it was super helpful! I uploaded my draft loan agreement for helping my cousin, and they pointed out several important things I hadn't considered. They explained that since I'm married filing jointly, I needed to be extra careful about documenting that the loan came from my separate property. They also provided template language for the loan document that specifically addressed the below-market loan exemption. The analysis was detailed but easy to understand - definitely worth it for peace of mind. My cousin got the money she needed and I'm confident we won't have issues with the IRS down the road.

So I've been trying for WEEKS to get actual clarification on this from the IRS directly. Called the general line multiple times, always 2+ hour wait times, then got disconnected THREE times after waiting. So frustrating. Finally found this service called Claimyr at https://claimyr.com that basically calls the IRS for you and gets you to a live agent without the wait. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was skeptical but desperate, so I tried it. Got connected to an IRS agent in about 12 minutes! The agent confirmed that spouses are generally considered separate lenders for the $10k threshold IF the funds are clearly separate property. But she also warned that if they think you're structuring the transaction just to avoid the rules, they could challenge it.

I was so skeptical about Claimyr that I almost didn't try it, but after seeing it mentioned here I gave it a shot. Honestly kinda shocked it worked! After trying to call the IRS myself for days, I got through to a specialist in about 15 minutes. The agent I spoke with actually gave me different advice than what was mentioned above. She said that while technically each spouse can make separate $10k loans, they look very carefully at where the money comes from. If you've commingled assets in joint accounts, they're more likely to treat it as one loan from a married couple. She suggested keeping detailed records showing the money came from accounts established before marriage or that contain only separate property. Glad I finally got real answers instead of just Googling in circles!

Another option to consider if you're worried about the interest issue is to just charge the minimum applicable federal rate (AFR). Right now the short-term AFR is super low, like around 5%. So on a $20k loan that's only like $1000 in interest per year. Your sister would need to pay that interest and you'd report it as income, but then there's zero questions about whether it's a proper loan.

Just a warning from someone who's been there... document EVERYTHING no matter which way you go. My parents loaned me $15k a few years back, charged proper interest and everything, but we didn't create a formal loan document. When they got audited for something completely unrelated, the IRS questioned the loan and ended up treating it as a gift. Huge headache for everyone.

I went through something similar when helping my nephew with college expenses. One thing that really helped was creating a simple spreadsheet tracking all payments and ensuring we had clear documentation showing the funds came from different sources (my checking account vs. my spouse's savings account). Also worth noting - if your sister is going through a divorce, make sure the loan doesn't complicate her divorce proceedings. Sometimes large financial transactions during divorce can be scrutinized by the court or the ex-spouse's attorney. You might want to coordinate with her divorce lawyer to make sure the timing and structure won't cause issues. From a practical standpoint, I'd recommend having both loan agreements reference different purposes if possible (like one for living expenses, one for legal fees) to further distinguish them as separate transactions. And definitely keep records of how she uses the money - if she immediately deposits both loans into one account and uses them interchangeably, it could undermine the "separate loan" argument.