Generally you can avoid gift tax implications if the lender(s) simply charge a reasonable interest rate that’s above the Federal Reserve’s AFR (minimum interest rate) and below the state of execution’s usury limit (maximum interest rate). That said the IRS defines a gift as follows:

The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not.

The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.


From the IRS gift tax FAQ:

Who pays the gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

What is considered a gift?
Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.

What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

  1. Gifts that are not more than the annual exclusion for the calendar year.
  2. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
  3. Gifts to your spouse.
  4. Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children:

  • $11,000 in 2002-2005
  • $12,000 in 2006-2008
  • $13,000 in 2009-2012
  • $14,000 on or after January 1, 2013

the annual exclusion applies to each gift.

What if my spouse and I want to give away property that we own together?
You are each entitled to the annual exclusion amount on the gift. Together, you can give:

  • $22,000 to each donee (2002-2005)
  • $24,000 (2006-2008)
  • $26,000 (2009-2012)
  • $28,000 on or after January 1, 2013.

More information about the IRS gift tax can be found in this FAQ