According to the former president’s tax returns, he granted loans to his adult children Ivanka, Donald Trump Jr. and Eric, and reported that he had received interest on these loans.
Trump declared a total of $50,715 in interest paid to him by his older children in 2017, 2018 and 2019, and $46,320 in 2020, according to his filings.
The staff of the Joint Committee on Taxation in its report last week said that the interest income raised the “question of whether the loans were bona fide transactions at arm’s length, or whether the transfers were disguised gifts that could result in gift tax and reversal of interest deductions by related borrowers.”
Bruce Dubinsky, a forensic accountant and certified fraud examiner, said it could be an estate planning technique.
The IRS’s position is that as long as it’s a bona fide loan, it will be honored as a loan, Dubinsky said. So every year, Trump is able to decide to forgive a certain amount of the tax-free loan, that is, not expect it to be repaid. Dubinsky says that means the taxpayer, Trump, owes no gift taxes on the forgiven amount, and the recipients, his children, pay no income taxes.
The gift limit before the donor could be taxed was $15,000 per year per person, so Trump and the first lady could have forgiven up to a total of $30,000 in loans to a child annually without gift or income tax implications. income, Dubinsky said.
“It’s an estate planning technique that’s widely used by wealthy taxpayers,” Dubinsky said. “The whole technique depends on the intention of the taxpayer when he first makes the loan, as he must intend it to be a legally binding loan, and there cannot be an agreement in advance that the loan will be completely forgiven in the future “.