$45K Family Loan Payback - How will IRS handle?

Question

I loaned my sister $45K for a downpayment on a house 5 years ago. She recently received a settlement in a lawsuit and will begin paying me back a little at a time. Today she transferred $10K from her bank account to mine within the same bank. Is a transfer reported to the IRS or only physical cash? Also, if she transfers $10K a few times this year, will it cause a problem for me?

Answer 1

It is reported to the IRS only for them to go after people trying to launder $$$ or beat them out of their taxes.

Speaking from personal experience: loaned family member $50K for same reason & they paid me back $10,000 on  every October 1st for 5 yrs. It didn't affect either of us.

Answer 2

Legally, you are supposed to be charging her interest at a market rate.  You are required to report that interest as income.  If that is not done, the payments in both directions would be considered gifts.  You can give up to $12,000 (unless they changed the number since I checked last) to any individual each year without tax effects.  After that, the giver is supposed to file a gift tax return.  That doe not necessarily mean gift taxes are due.

The $10,000 transfer WILL be reported to the Federal government.  The actual purpose is NOT related to taxes.  It is to aid in detecting money laundering and other financial crimes.  That said, if she transfers large amounts on a regular basis, and your tax returns don't provide an explanation, don't be surprised if the IRS asks why.

Answer 3

The only thing you have to report is "interest".  Did your sister pay you any interest which is included in her payment to you?