Private Loans and Your Credit Report

Today I'm going to focus on answers to a few follow-up questions you've had about recent columns and articles.

Private loans and your credit report

I read your Private Loans Won't Help Credit History column, where you told the reader that the mortgage she takes out through her uncle won't count on her credit report. But can't you get a private loan to count on your credit report if you use a service like CircleLending?

That's a great point. Even though a private loan between relatives generally won't be reported to the credit bureaus, you may be able to include the information if you set the mortgage up through a loan administration company. CircleLending, which services private loans among friends, family members and others, gives borrowers the option of reporting their loan payments to Experian and plans to expand to additional credit reporting agencies.

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The cost to set up a mortgage through CircleLending ranges between $649 for documentation alone to $999 for documentation and repayment service, including escrow. For more information about how these arrangements work, and other strategies to help when buying your first home, see Advice for First-Time Buyers.

Kiddie-Tax Law Clarified

I hope you can answer a question regarding the new kiddie-tax law. The Congress Closes Kiddie-Tax Loophole article says that it might be a good time to give children in the 18-to-23 age range appreciated stock so they can sell it at their lower capital-gains rate (which is generally 5% for long-term capital gains) before the law changes in January. But don't you have to hold the stock for more than a year to qualify for the long-term capital gains rate? I wanted to give my college-aged grandsons some stock so they'd be taxed on the gains at their 5% rate rather than my 15% rate, but they would only own it for a few months if they wanted to sell before the end of the year.

As long as the stock has appreciated in value, the holding period starts when you originally bought the stock -- not when you transferred the ownership. So as long as you bought the stock at least a year before your grandsons sell it, then they'll be taxed on the profits at their long-term capital-gains rate, even if they hold it for only a few months. The basis is also based on your original purchase price and any reinvested dividends (plus brokerage commissions).

The rules are different if the stock has lost value, but there would be no tax benefit to giving your grandsons a money-losing stock. For details about the tax rules, see Taxes on Gifts of Stock.