A loan is not income, right?

[nickifan]

I am so confused about the whole loan vs. gift vs. gift-is-income or no-it's-not various things I have read....

In that vein, I was wide awake last night thinking...is the $5000 loan I received from dear friends in November something I need to file a tax return for now?? I earned no income at all last year -- no job, no W-2 wages, no 1099, no bank interest, nothing. But now I'm wondering if that loan is income?
I don't think it is, but... Isn't there some $10K limit before taxes come into play, anyway?

Thanks for input.

[justbroke]

Let's split this into two things. Let's first talk about taxes. If your friends gave you a gift of $5,000, that is a non-taxable gift. Even if it were over the $13,000 annual limit for gifts to a single person (doubled if married), the person giving the gift pays the taxes, but not until they reach their lifetime limit for gift taxes. So, don't even worry about it's tax status, because, as the receiver, you'd never be taxed anyhow.

Now, is it income! Well, if it's a gift, then it is income for purposes of the "current monthly income" (CMI) calculation in a bankruptcy. If it's a loan, then it is not part of your CMI, but does need to be listed as either a secured or unsecured loan on your Bankruptcy Schedules.

Always remember this. Bankruptcy considers all income as part of your CMI regardless of taxability! (With the exception of Social Security benefits and some war crime/reparations benefits.) But a loan is a loan is a loan.

[nickifan]

Let's split this into two things. Let's first talk about taxes. If your friends gave you a gift of $5,000, that is a non-taxable gift. Even if it were over the $13,000 annual limit for gifts to a single person (doubled if married), the person giving the gift pays the taxes, but not until they reach their lifetime limit for gift taxes. So, don't even worry about it's tax status, because, as the receiver, you'd never be taxed anyhow.

Now, is it income! Well, if it's a gift, then it is income for purposes of the "current monthly income" (CMI) calculation in a bankruptcy. If it's a loan, then it is not part of your CMI, but does need to be listed as either a secured or unsecured loan on your Bankruptcy Schedules.

Always remember this. Bankruptcy considers all income as part of your CMI regardless of taxability! (With the exception of Social Security benefits and some war crime/reparations benefits.) But a loan is a loan is a loan.

Thanks, justbroke. I wish it were a gift but it is a loan, though they will be very patient about its repayment. In that vein, would a trustee (or my lawyer) want to see some "official" paperwork on it, other than the card the check came in, which said, "hope this helps and pay us back when you get on your feet again"?? There has been absolutely no discussion of interest, for example...is a no-interest loan some type of red flag to anyone?

I also have a few other small loans ... $800, $500.

[justbroke]

No-interest loans? The Treasury has been giving those to banks for over a year now, so... A loan just means there's a promise to pay. In your case, their saying "pay us back" you are back on your feet isn't really your promise to repay.

In any event, verbal agreements on loans are still loans. If you included it on your Bankruptcy forms (Schedule F), I don't think there would be any questions about it. Remember, the bankruptcy is discharging the loan. Also, having been discharged, bankruptcy doesn't preclude a voluntary repayment of any debt, so discharged.

I don't believe your $5K loan is a gift at all, since they are expecting you to "pay [them] back when you get on your feet again".

[BCA2009]

If you had no other income in 2009 other than a 5000 loan, you will have not have an issue filing BK. If you are completing your forms to file, I would list it as a loan, which it is. But even if the trustee forced you to re-classify as income, your six month look back would still be only $833 per month.