Tax implications of a personal loan to a friend with interest - reporting requirements?

Yes, you do need to report the $7.5K interest as income on your tax return. That interest is considered taxable income by the IRS, specifically as interest income. You should receive or create a Form 1099-INT for this transaction, and report it on Schedule B of your tax return. The principal amount ($50K) coming back to you isn't taxable since that's just a return of your own money. However, the $7.5K interest portion is definitely taxable income. The fact that you're keeping it in cash doesn't change its taxable nature - the IRS doesn't care where you physically store your money. Also, be aware that large cash transactions can trigger reporting requirements. Banks are required to file Currency Transaction Reports for cash transactions over $10,000, but in your case, you're just depositing the same amount you withdrew previously, so that particular transaction might not raise flags.

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Be careful with these "private loans" to friends. If you don't structure them properly, the IRS could potentially recharacterize them as gifts, especially if you don't have proper documentation or aren't charging a minimum interest rate. Look up "Applicable Federal Rates" (AFR) to make sure your interest rate meets IRS requirements for legitimate loans. Also, while others covered the interest income reporting, don't forget that if your friend defaults on the loan, you'll need to jump through several hoops to claim a bad debt deduction. The IRS is very strict about documenting your attempts to collect.

Also - be super careful about carrying large amounts of cash around! Anything over $10k that gets discovered (like during a traffic stop) can be subject to civil asset forfeiture in many places. The cops can literally just take your money and you have to prove it's not drug money or something to get it back. Super messed up but it happens all the time.

Just wanted to add something important that hasn't been mentioned yet - make sure you keep detailed records of the original loan transaction too. Since you withdrew $50K in cash from your bank, that withdrawal should be documented on your bank statements. This creates a clear paper trail showing the money left your account and then returned, which helps establish the legitimacy of the loan arrangement. Also, regarding the 15% interest rate you charged - that's actually quite reasonable and well above the current Applicable Federal Rates (AFR), so you shouldn't have any issues with the IRS questioning whether this was a legitimate loan versus a disguised gift. The AFR for short-term loans is currently much lower, so your 15% rate clearly shows this was a commercial-style transaction. One more thing to consider: if you plan to make similar loans in the future, you might want to consider having your friend write you a check for the interest portion instead of paying in cash. This creates better documentation and avoids the complications others mentioned about carrying large amounts of cash.