# USA Taxation: Loan from Husband to Wife



## debbie790 (Dec 28, 2010)

Hello,

Wife: USA citizen, residing in Middle East. Files USA-tax return every year "Married filing separately"
Husband: Canada citizen, residing in Middle East
Kids: None


The couple does not have a joint bank account (i.e. there is no co-mingle of funds)
Wife plans to invest money in USA, and would like to borrow from husband. Husband will lend the money in Middle East, and wife will remit funds from her Middle East bank account to her USA bank account.

*Questions:*
1. What interest rate can the husband charge the wife?
2. Wife will pay this interest amount to husband in Middle East. Would the interest income be subject to any USA tax (withholding, etc.)?
3. Can the wife claim the interest amount as investment expense on her USA tax return?

Thanks.
Debbie


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## Moulard (Feb 3, 2017)

This is not a strong area for me ... but some thoughts..

1.Technically, you can charge what ever the two of you mutually agree on. There is a minimum applicable federal rate for family loans that is determined based on amount and loan term. From an IRS perspective, If the loan is over 10k USD and the rate is considered a below market loan then it will be treated as a "gift loan" and specific borrower rules will apply to her, but as you are not a US person they would not apply to you as the lender as far as I am aware.

2. On the facts presented, I do not believe so. Subject to local laws and the amounts involved you may have to report the interest received to your your local tax authority, and similarly your wife may have to comply with local income tax withholding rules, but on the US side, no.

3. It will depend on what she is investing in, but generally if it is an asset that produces interest, dividends, annuities, results in ownership in a share of a business, then yes, subject to certain rules and limits she will be able to deduct the interest that she pays you.

This may help on what can and cannot be claimed as an investment expense.



https://www.irs.gov/pub/irs-pdf/p550.pdf


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