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Loaning money to family and friends is a tricky business for many reasons. Taxes are among them. Funds received as proceeds of a loan aren’t taxable if the borrower is expected to pay it back. However, the moment some or all of the debt is forgiven (doesn’t need to be paid back), the IRS will want its cut. This is true for loans from banks and other business entities — including foreclosures, repossessions, voluntary transfers of property to lenders, property abandonment, and mortgage modifications — as well as good-faith loans between family and friends.

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