Generate a comprehensive intra-family loan agreement with IRS-compliant interest terms, repayment schedules, tax documentation provisions, and optional debt forgiveness clauses. Real-time preview with attorney-drafted template.
I built this family loan agreement generator to help families formalize private lending arrangements with proper legal documentation. Family loans are one of the most common sources of private financing, whether for a home purchase, education expenses, starting a business, or covering medical bills. Without a written agreement, the IRS may reclassify the transaction as a gift, creating unexpected tax consequences for both the lender and borrower.
This generator produces a comprehensive loan agreement that addresses the unique legal and tax requirements of intra-family lending. It covers IRS Applicable Federal Rate (AFR) compliance, imputed interest rules for zero-interest loans, gift tax implications, Form 1099-INT reporting obligations, optional debt forgiveness with proper gift tax documentation, and family-specific dispute resolution options including family mediation.
Every field updates the live preview instantly, so you can see exactly how your choices affect the final document. The interest section automatically handles AFR rate references for short-term, mid-term, and long-term loans, and includes IRS imputed interest warnings when you select zero-percent interest on loans exceeding $10,000.
The AFR is the minimum interest rate the IRS requires on private loans to avoid gift tax consequences. Rates are published monthly in three categories: short-term (up to 3 years), mid-term (3 to 9 years), and long-term (over 9 years). Charging less than the AFR causes the IRS to treat the difference as a taxable gift from the lender to the borrower.
For loans of $10,000 or less, the IRS generally does not require interest (the de minimis exception). For loans between $10,001 and $100,000, imputed interest rules apply with limited exceptions. For loans over $100,000, the IRS requires at least the AFR to be charged, and failure to do so triggers imputed interest and potential gift tax consequences.
Below-market interest on a family loan is treated as a gift by the IRS. The forgone interest counts against the lender's annual gift tax exclusion and lifetime exemption. Forgiving a family loan also constitutes a taxable gift. Proper documentation and charging at least the AFR helps avoid unintended gift tax consequences.
Forgiving a family loan is treated as a gift. If the forgiven amount exceeds the annual gift tax exclusion ($18,000 per recipient in 2024), the lender must file IRS Form 709. No gift tax is typically owed unless the lifetime exemption has been exceeded. Some families structure gradual forgiveness within annual exclusion limits to minimize reporting requirements.
Proper documentation includes a written agreement, records of all disbursements and payments, Form 1099-INT reporting if interest exceeds $600 annually, consistent tax return treatment, and evidence of regular repayment. The IRS may reclassify a poorly documented family loan as a gift.
Yes, a properly drafted family loan agreement is enforceable like any other contract. Key requirements include clear identification of parties, specific loan terms, a defined repayment schedule, and signatures. A written agreement also helps the IRS recognize the transaction as a legitimate loan rather than a gift.
The IRS scrutinizes intra-family loans closely because they can be used to disguise gifts. To ensure your family loan is treated as a legitimate debt obligation, you should charge at least the AFR, execute a written promissory note or loan agreement, establish a fixed repayment schedule and actually follow it, deposit and withdraw funds through traceable means (bank transfers, checks), and report interest income on the lender's tax return. Both parties should maintain copies of the agreement, all payment records, and any 1099-INT forms for at least seven years.