Family loan for house down payment with 0% interest from relatives outside US - Tax implications?

That's a generous offer from your in-laws! To clarify, money received as a gift isn't taxable income to you as the recipient. The gift tax is actually the responsibility of the person giving the gift (your in-laws in this case). For 2024, each person can give up to $18,000 per year to any individual without having to report it ($36,000 total if both in-laws give to both you and your husband). Anything above that would need to be reported on a gift tax return, but that doesn't necessarily mean they'll owe taxes. Non-US citizens who are not US residents generally only have gift tax liability on gifts of US property (like US real estate or securities) - not on cash gifts. Since this is meant to be a loan that you'll repay, you might want to create a simple written loan agreement. Without one, the IRS might view it as a gift. If it's a loan, the IRS expects interest to be charged at a minimum rate (the Applicable Federal Rate or AFR). If no interest is charged, the IRS might consider the "imputed interest" as a gift from your in-laws to you each year.

After dealing with almost the exact same situation with my parents (but they're in Australia), I found taxr.ai https://taxr.ai super helpful for figuring out the family loan vs gift situation. I uploaded the info about our arrangement, and it analyzed everything and gave me specific guidance on what documents we needed for it to be considered a legitimate loan. The tool basically confirmed what I suspected - without proper documentation, the IRS would likely consider it a gift rather than a loan. It even gave me a template for creating a simple promissory note that satisfied the requirements without making things too formal between family members. Saved me hours of research and probably an expensive consultation with a tax professional.

I just wanted to update after trying taxr.ai for my situation with family in Singapore. It was actually really helpful! The tool immediately flagged that I needed to consider FBAR reporting requirements since we're receiving over $10,000 from foreign accounts, which I had no idea about. It also gave me a simple loan agreement template that works for international family loans and explained exactly how to structure it to avoid gift tax issues. The coolest part was that it explained how gift tax works differently for non-resident aliens giving to US persons (basically confirming they only need to worry about US-based assets, not cash transfers). Definitely worth checking out if you're navigating a similar situation with overseas family. Saved me from potentially missing some important reporting requirements!

If you're still struggling to get answers from the IRS about your family loan situation, try Claimyr (https://claimyr.com). I was on hold with the IRS for HOURS trying to get clarification about gift tax reporting for my parents' loan from overseas, and kept getting disconnected. Claimyr got me connected to an actual IRS agent in about 20 minutes! I watched their demo video first (https://youtu.be/_kiP6q8DX5c) and was skeptical, but it actually works. The agent I spoke with walked me through the exact documentation needed to properly structure our family loan and confirmed my understanding of the gift tax implications. Definitely worth it when you need answers straight from the source.

I need to update my previous comment because I actually tried Claimyr after posting that skeptical reply. I was desperate after trying to get through to the IRS for three days about a similar family loan question. It actually worked exactly as advertised. I got a call back in about 35 minutes, and was connected with an IRS agent who answered all my questions about documenting family loans from overseas relatives. The agent confirmed that as long as we have a written agreement with the AFR interest rate (even if it's minimal), we can avoid gift tax complications, and explained exactly how my foreign relatives should document it. I'm genuinely impressed and take back my skepticism. When you need answers directly from the IRS about something as specific as international family loans, this is way better than trying to interpret vague information online.

One thing nobody mentioned yet - make sure you and your spouse each keep the loan amounts under the annual gift exclusion per person if possible. Remember, each of your in-laws can give each of you $18,000 in 2024 without any reporting requirements. So that means: - Father-in-law to you: $18,000 - Father-in-law to your spouse: $18,000 - Mother-in-law to you: $18,000 - Mother-in-law to your spouse: $18,000 That's $72,000 total without any gift tax implications at all. Then you could do the same next year for the remaining amount. Just make sure each transfer is properly documented as coming from the specific in-law to the specific spouse.

Just a warning from someone who's been through this - document EVERYTHING regardless of which route you choose! My wife and I borrowed $90k from her parents in Brazil for our down payment, had a verbal agreement to repay, but never formalized anything. Years later during an audit for an unrelated issue, the IRS questioned the source of our down payment. Since we had no documentation showing it was a loan, they treated the entire amount as unreported income and we got hit with a massive tax bill plus penalties. It was a nightmare to sort out. Whether you go with a formal loan with interest or decide to structure it as separate gifts, make sure you have crystal clear documentation for everything. International money transfers especially get scrutiny.

This is exactly the kind of situation where getting proper documentation upfront can save you from major headaches later. Based on what others have shared here, it sounds like you have a few solid options: 1. **Formal loan route**: Create a written loan agreement with interest at the Applicable Federal Rate (currently around 3-4% for long-term loans). This keeps it clearly as a loan and avoids any gift tax complications. 2. **Gift route**: Structure it as separate gifts using the annual exclusion limits ($18,000 per person per recipient in 2024), which would let you receive $72,000 gift-tax-free this year and the remainder next year. 3. **Hybrid approach**: Set up the loan with AFR interest but have your in-laws gift you back the interest payments each year within the annual exclusion limits. Given that your in-laws are in Europe (non-US residents), they generally won't have US gift tax obligations on cash gifts to you. However, since you're receiving over $10,000 from foreign accounts, you'll likely need to file FBAR reports. I'd strongly recommend getting this documented properly from the start - either as a legitimate loan with proper terms or as clearly structured gifts. The horror stories about IRS audits treating undocumented family money transfers as unreported income are real and expensive to fix after the fact.