I paid my mother back money I borrowed from her. will she have to pay taxes on the money?

Question

I borrowed money from my mother to pay bills, like the IRS several years ago, I recently paid her back partially by buying her a car and giving her money. She did not charge me interest on the loan, but has a note that was made out by her attorney, will she have to pay anything on the money I paid her back? thanks

Answer 1

I'm a Tax Advisor with a reputable firm, but feel free to check my answer - always get a second opinion. your mothier does not owe taxes on the money you borrowed and paid back. However, she should report any interest you may have paid on Schedule B of her tax return.
Also, H&R Block offers basic tax classes for the public, and usually you only have to pay for the textbook. I found the class helpful (and it paid for itself on my first return).

Answer 2

There is no taxes on the repayment of a loan since it is just money going back and forth. Now if one person wrote the loan off as a loss on their taxes that would be another story.

Technically if you paid her interest on the loan she should have paid taxes only on the interest but I doubt that anyone would even know about it.

Answer 3

There is no tax to your mother on the collection of the debt, generally. If, however, she has previously claimed a deduction for a non-business bad debt then she is taxable on the recovery (collection) of the amounts she deducted. Also, if the debt was in excess of $10,000, the IRS may impute interest income to your mother and interest expense to you. If you are exposed to the imputed interest provisions...keep your head down and your fingers crossed. This would only become an issue if the IRS examined your or your mother's returns for any year during which the debt was outstanding.

Answer 4

I'm not an attorney nor an accountant, however, it is my understanding that all loans are supposed to contain some percentage of interest, no matter how small, otherwise they could be considered as gifts by the IRS and taxed.

Answer 5

On the money she probably won't, if there was no interest on it. As for the car. She'll have to pay personal property taxes on it. At least this is what I understand.

Answer 6

As a certified public accountant, I feel qualified to answer your question.

Legally, she should pay taxes on the amount of interest she received. The return of principal (the amount she loaned you), however, is just that...a return of her own money. Therefore, it is not taxable income.

Answer 7

No. Only on the interest you paid her if any.