united-states tax-law gift barter
Is lending taxable?
<p>Barter is taxable. So are gifts. What about lending objects (possibly for an indefinite amount of time)?</p>
<p>If it is not taxable, would that constitute a loophole for the taxation of gifts and barter?</p>
<p>If not, why? Perhaps there is some restriction on how ownership works in that case?</p>

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<p>Under U.S. law, a no interest loan is treated as a loan for a statutorily determined fair market value interest loan, called the Applicable Federal Rate or AFR described in 26 U.S.C. § 1274(d) (in the case of money or the equivalent) which is called imputed interest, coupled with a gift from the person making the loan to the borrower, in the form of forgiveness of the implied in law interest on the loan, which is a gift for gift tax purposes.</p>
<p>There are several exceptions to this general rule, basically targeted at ignoring trade creditor terms (like paying 30 days net for a purchase), and small transactions.</p>
<p>In the case of payment-free loans tangible real or personal property, the fair market rental value of the loaned property can be treated as a gift for gift tax purposes.</p>
<p>Again, this would rarely be applied in practice in the case of small loans (you let your friend use a pencil or a lawn mower for a month), but will often be used in economically important transactions when there is already an audit in progress (e.g. use of a very expensive yacht or vacation home).</p>
<p>Usually receipt of loan proceeds is not taxable income, and usually, repayment of loan principal is not a deductible expense, but I believe that there are some obscure exceptions to that rule that amount of substance over form determinations.</p>
<p>Also, it is possible for the IRS to determine that while the parties have called something a loan with an indefinite time of return or repayment, that it is really just an outright gift and that the loan characterization is just a sham.</p>
