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Must I report interest on a loan to my child?

April 6, 2013: 6:30 AM ET

I have made a formal loan to my adult child. Do I have to report the interest I receive as income? — J.H., Texas

Yes, interest you earn on a personal loan is taxable and should be reported to the IRS. The figure goes on line 8a of your 1040; if all your taxable interest income in a year exceeds $1,500, you also have to file Schedule B, which records interest and ordinary dividends.

Additionally, you can fill out a 1099-INT form showing interest income for the loan each year for the loan each year (order a copy at irs.gov). Though the form is usually filled out by the party paying interest, either you or your child can do the job. Mark Gilbert, a CPA and financial planner in Naperville, Ill., explains that if your child wants to deduct the interest (say, for a mortgage), the 1099-INT is needed to back that up.

— Lauren Gensler

Got a question for the Help Desk? Send it to helpdesk@cnnmoney.com.

Posted in: Family Money, Taxes
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