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Help, receiving loan for investments from friends. (tax question)

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bizboy

Contributor
Dec 25, 2007
97
20
19
Florida
Hi, I'm receiving a loan from friends for investments for 2 years, I'm going to invest some of the money in stocks and mutual funds.

So my question is, when I do my taxes and they ask how much I made and I provide the w-2 but when they ask me if I have any stocks or mutual funds, what do I say? Do I tell them I received (lets say 100K for a loan from friends which is in stocks and mutual funds), would I be taxed and what kind of documents do I need to provide?

Thanks for your help guys.
Victor
 

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bizboy

Contributor
Dec 25, 2007
97
20
19
Florida
Re: Help, receiving loan for investments from friends. (tax quest

I think I need to just report the capital gains but do I need to provide bank statements showing the load funds came from friends and have the friends sign a paper stating it's a loan for 2 years.
 

Diane Kennedy

Bronze Contributor
Aug 31, 2007
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209
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Re: Help, receiving loan for investments from friends. (tax quest

Hi, I'm receiving a loan from friends for investments for 2 years, I'm going to invest some of the money in stocks and mutual funds.

So my question is, when I do my taxes and they ask how much I made and I provide the w-2 but when they ask me if I have any stocks or mutual funds, what do I say? Do I tell them I received (lets say 100K for a loan from friends which is in stocks and mutual funds), would I be taxed and what kind of documents do I need to provide?

Thanks for your help guys.
Victor
You don't say where you're from, but I'm going to answer this assuming that this is subject to US taxation.

I'm also guessing that you file a Form 1040 (Individual Income Tax Form) only. In other words, you're not investing through a company.

Strictly answering your tax question (and not whether it's a good idea to borrow money from friends for investments), you have a loan. I strongly urge you to get all the details of the loan in writing. You'll either have an interest rate you pay as part of the debt instrument, or the IRS is going to "impute" an interest. In other words, they assume you're paying interest even if you say you're not.

That interest is an investment expense. It'll be income to your friend and an expense to you. That expense is limited to the amount of investment income you have. Investment income would include interest, dividends and capital gains income.

On your Form 1040, you'll report the investment interest expense and the interest, dividends and capital gains income that you earned from the investments. Depending on exactly what type of investments you're making, you may report the income on Schedule B (interest and dividends) and/or Schedule D (short-term and long-term capital gains). Your friends just report the investment interest income (Schedule B).
 
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bizboy

Contributor
Dec 25, 2007
97
20
19
Florida
Re: Help, receiving loan for investments from friends. (tax quest

Very helpful, thank you.

Sorry I forgot to mention that I live in Fl, USA.
 

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