Lender and Borrower Relationship

Lenders and Borrowers

For most transactions lenders and borrowers have a formal relationship. However, when the lender and borrower know each other, whether they are family or friends, is an entirely different story. The Internal Revenue Service has specific rules that govern the transaction especially when the parties know each other.

Colorado Lenders and Borrowers

For starters, the loan must be done in a business-like manner. Even though you know one another doesn’t mean that you don’t have to do everything that you would normally do. You are going to want to have a written note specifying the loan amount, interest rate, term and collateral. The Internal Revenue Service requires that the mortgage be a recorded lien to allow the interest deduction.

You may be in a situation in which you have a less than normal interest rate on your mortgage. Though this is a great thing, remember that there are restrictions on this as well. The rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS based on current Treasury securities. You don’t want to make any of these agencies mad, so make sure you follow the guide lines they specific as closely as you possibly can.

Your tax professional can guide the transaction whether you’re a buyer or a seller and your real estate professional can help arrange to have the documents drawn and filed. If you are looking for a lender, contact Colorado Horse Property for assistance.

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