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Here’s a quick overview of how loans and taxation work in the United States on a federal level. Keep in mind that every state and local municipality may have its own rules in addition to what is stipulated here.

Receiving Loans

You technically do not pay taxes when receiving a loan. Loans you receive are considered a liability, and taxes are paid on money you make, not money you owe. For example, if you receive a loan through an online cash advance lender, you do not pay taxes on the money they loan you. If you take a loan and invest it, the money you make from the investment can be taxed. If you are given a deal with the entity that provided the loan to pay less than the balance owed, you can be taxed on the amount you didn’t have to pay.

Giving Loans

If you give out a loan, you are obligated to pay federal taxes on the interest you earn from that loan. Anytime you loan anyone money, even family, you should have a promissory note or written agreement made that stipulates the conditions of the loan, including whether interest is paid or not. In some cases, the IRS may calculate an imputed interest or charge a gift tax (usually paid by the donor) on some interest free loans (usually large loans).

Generally, you will receive a tax form on anything you must pay taxes on, but if ever in doubt, especially before giving out a large loan, you can contact a tax professional, CPA, or the IRS with specific questions.