My mom is selling her home and buying a new one. Unfortunately she has to buy her house may 1 but cannot sell her house until may 15.
She is not getting a mortgage for her new house as she has enough equity in the house she is selling along with savings to buy the new house in cash.
However due to the 2 week delay- she cannot use her equity to buy the new home. As a result, a few families members have agreed to lend her about $200k in total to help her buy the house. Once her house is officially sold- she will pay everyone back.
I am planning on lending her $40k for the 2 week period but am unclear on the best way to do this without getting killed on taxes. Does anyone have any advice on how to handle this situation?
She explored getting a bridge loan but decided against it.
Need advice on temporarily loaning my mom $40k
byu/Jackianna inpersonalfinance
Posted by Jackianna
18 Comments
There shouldn’t be any taxes in this situation
I’ve always been told to treat loans to family members as gifts (i.e., don’t expect to be paid back). This situation seems a bit different, but just wanted to add that caution.
Really, really poor decision making on the part of the family. There is such a thing called a Bridge Loan that is designed specifically for this type of situation. Tell your mom the get that loan which will be paid automatically at the closing of her existing home sale.
If you loan someone $40k and then get it back in a month, there are no taxes owed and nothing to do.
If you GIVE someone $40k (and don’t get it back), you have to disclose it since it counts towards your lifetime gift tax exclusion. But you don’t actually pay taxes until you pass the lifetime limit (currently about $15 million).
This may get some hate… but, as much as I love my mom… we’re not responsible for one another’s financial endeavors. Frankly, it’s not your problem.
The minimum interest is $40,000 * 3.53% ([AFR](https://www.irs.gov/applicable-federal-rates)) / 365 * 15 = $58, unless your mom has no more than $1,000 in net investment income (realized capital gain, dividend, interest, etc.)
Does the IRS really care if you impute $58 on your 2026 tax return? No.
>She explored getting a bridge loan but decided against it.
And that is what you call a big red flag. There’s no good reason to do this and a lotta bad reasons not to do it. But if you love your mama and don’t mind losing $40k when “something happens”, then go ahead and do it. But how is the rest of the family going to feel if/when they don’t get paid back … or if/when it takes years to get paid back? *YOU* can be the person that stops a big ol’ mess that rips your family apart.
A bridge loan is possibly inconvenient for her. But multiple family members coming up with funds to help her buy another house is a big inconvenience for a lot more people.
That is a terrible decision and I would be getting a signed contract for this loan to protect myself. She “decided against a bridge loan”?!? That’s LITERALLY what they’re there for, she planned poorly and didn’t align her closing dates, (and I hope to fuck she actually has a confirmed sale and closing date for her current house and it’s not just “I’m pretty sure it’ll sell quickly!”). She decided against a bridge loan because they’re not free but borrowing 200k from family is a WILD choice for all of you to be enabling. I would get the contract and tell her it’s for tax purposes. If she balks, then you have a red flag to take seriously. Hope you don’t lose your shirt.
If you feel you must, loan the money to her on a note secured by the new house, through the escrow on the house. When she pays you back, the loan against the new house will be removed. If she doesn’t pay you back, it will be paid off when the house is sold. Lots of ifs, ands, and buts here, so check with the closing agent who will know the procedure in your state, and should protect your money if she dies, marries, etc.
Banks have loans for that. They are called bridge loans.
I know it sounds snarky, but that’s truly not my intention: I would tell her to re-explore getting a bridge loan. It should be very reasonable, in that it will be short term and the bank will be covered by using the property to cover their potential loss. It’s very common in real estate, probably every day. It’s really the easiest, smartest, and safest way to get this done.
Ideally each lender will have a written agreement that states every detail. The repayment schedule, and an interest rate (Applicable Federal Rate). What happens if she defaults or the lender dies before its paid in full. Usually the loan is paid from her estate if she passes before its paid and your estate will collect. This, and following the terms, creates a legitimate debt. Then if she has a catastrophy, a storm takes out the house, or she has a long term illness, you can write it off on your taxes as bad debt.
If you intend to give her the money put that in writing. You don’t have to report gifts below the annual exclusion. If you give more than that you just want to file a gift tax return. Every taxpayer has a lifetime exclusion and it’s $15 million in 2026. So you apply the $40k to the exclusion. No tax due unless you already gave away $15 million.
Your Mom should be working with a real estate attorney. They can advise you all best because they will know the really important detail you left out. They can write up the loan agreements too. Dont work without an attorney and dont work with an attorney who says, oh you dont need that. This will protect your Mom as well as the ones making the loans.
>She explored getting a bridge loan but decided against it.
I don’t see why this is now your problem. I wouldn’t give her the money.
You can loan up to $100k to a family member without interest.
I think she needs to tell her seller that she cannot close until May 15. When I sell a house and buy another, I sell the house first, go into temporary housing and then buy another house. Thus I never need to borrow from friends or family.
> I am planning on lending her $40k for the 2 week period but am unclear on the best way to do this without getting killed on taxes. Does anyone have any advice on how to handle this situation?
If this is a loan and she pays it back there are no tax issues.
You should draw up a loan contract that starts to asses interest daily, compounded daily. The IRS minimum interest (Applicable Federal Rate (AFR)) to avoid the loan being considered a gift or partial gift is currently 4.59 percent. Thus if she pays back you in 14 days, 4.59 / 100 / 365 * 14 * 40,000 = $70.42 interest. The AFR changes every month and since this loan will be running in May, visit the IRS AFR page https://www.irs.gov/businesses/small-businesses-self-employed/section-7520-interest-rates in May to see what the AFR then is.
If this is a gift, you will have to report it on form 709. If your non exempt gifts have exceeded $15M to date, then
* you will pay gift taxes, and
* you did not need to create your post because you are rich and you have people who work for you who understand all this.
Note that almost invariably, loans to friends and family end up being gifts. However, if you do draw up a loan agreement, she defaults, and you forgive the loan, the $40,000 will be considered income to her, and you will issue her a 1099-C and report it to the IRS.
It’s business. She needs to get the bridge loan. 5K loan no biggie, small loss. Anything over that is business, family, friend or stranger. NEVER loan what you can’t afford to not get back.
She could also have a contingency clause on her offer to buy the new house if she’s fairly sure her current home will sell. Otherwise I would avoid lending money to family. What if her current house ends up selling for less than she expects?
Maybe I’m mistaken but if you show a line going out and a line coming back couldn’t it just be a loan and she paid it back? No tax issues there right?