No-interest loan comes with tax bite

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DEAR BENNY: My wife and I want to give our two grown children an interest-free loan for $360,000. They currently have a 15-year fixed 5 percent loan for this amount for a second home they both enjoy. With our given money they can immediately pay off the bank loan and pay us back $4,587 per month for approximately 6.5 years.The $4,587 is their current monthly payment. Staying with the bank loan, they would fully pay it off in seven years and 10 months. Paying the loan off 16 months early will represent a savings to them of more than $73,000. Because this is a no-interest loan, we don't think we are required to pay any taxes either to the federal government or to our state and local township. Our economic status is such that we can easily go forward with this plan. Are we missing something here? --Frank DEAR FRANK: Yes, the IRS will consider that you are receiving interest (I call it "phantom interest") and will hold you responsible for including that in your annua...