The Internal Revenue Service sets applicable federal rates (AFR) monthly and publishes them as revenue rulings. These rates are used to compute imputed interest when lending money to family members and/or friends, estate planning, valuation of charitable gifts, and other financial transactions. The IRS categorizes AFR rates based on the length of loan term: short-term – loans of three years or less, mid-term – loans between three and nine years, and long-term – loans over nine years. You can find all the current AFR rates by visiting the IRS website. AFR rates are published with a monthly update based on prevailing market yields, specifically the yields of US marketable debt instruments like Treasury bills.
When to Use the AFR?
When lending to family or close friends, it is important to charge an interest rate at or above the AFR rate to avoid any potential tax implications. It is also recommended to consult a tax specialist when making these types of financial transactions. They will be able to assist you with the complexities of reporting AFR interest and help you prevent any tax issues down the road. For instance, they will help you understand the various kinds of AFR, check the monthly AFR rate, determine the loan term, select the best-suited AFR type, and implement the AFR while ensuring proper documentation.
The IRS publishes these AFRs to help lenders calculate the amount of taxable interest in loans between related parties such as family members. Typically, interest on such loans is taxed at the personal income tax rates of the recipient. The AFRs are used to compare the taxability of a loan against the applicable federal rates in order to determine the taxable interest rate for such loans. The AFRs can also be used to determine original issue discount and unstated interest, which are both important calculations in estate and gift tax matters.
Short-Term AFR Rates for November 2023
| Month | Annual | Semiannual | Quarterly | Monthly |
|---|---|---|---|---|
| January | 4.50% | 4.45% | 4.43% | 4.41% |
| February | 4.47% | 4.42% | 4.40% | 4.38% |
| March | 4.50% | 4.45% | 4.43% | 4.41% |
| April | 4.86% | 4.80% | 4.77% | 4.75% |
| May | 4.30% | 4.25% | 4.23% | 4.21% |
| June | 4.43% | 4.38% | 4.36% | 4.34% |
| July | 4.80% | 4.74% | 4.71% | 4.69% |
| August | 5.07% | 5.01% | 4.98% | 4.96% |
| September | 5.12% | 5.06% | 5.03% | 5.01% |
| October | 5.22% | 5.15% | 5.12% | 5.10% |
| November | 5.30% | 5.23% | 5.20% | 5.17% |
Mid-Term AFR Rates for November 2023
| Month | Annual | Semiannual | Quarterly | Monthly |
|---|---|---|---|---|
| January | 3.85% | 3.81% | 3.79% | 3.78% |
| February | 3.82% | 3.78% | 3.76% | 3.75% |
| March | 3.70% | 3.67% | 3.65% | 3.64% |
| April | 4.15% | 4.11% | 4.09% | 4.08% |
| May | 3.57% | 3.54% | 3.52% | 3.51% |
| June | 3.56% | 3.53% | 3.51% | 3.50% |
| July | 3.85% | 3.81% | 3.79% | 3.78% |
| August | 4.09% | 4.05% | 4.03% | 4.02% |
| September | 4.19% | 4.15% | 4.13% | 4.11% |
| October | 4.43% | 4.38% | 4.36% | 4.34% |
| November | 4.69% | 4.64% | 4.61% | 4.60% |
Long-Term AFR Rates for November 2023
| Month | Annual | Semiannual | Quarterly | Monthly |
|---|---|---|---|---|
| January | 3.84% | 3.80% | 3.78% | 3.77% |
| February | 3.86% | 3.82% | 3.80% | 3.79% |
| March | 3.74% | 3.71% | 3.69% | 3.68% |
| April | 4.02% | 3.98% | 3.96% | 3.95% |
| May | 3.72% | 3.69% | 3.67% | 3.66% |
| June | 3.79% | 3.75% | 3.73% | 3.72% |
| July | 3.98% | 3.94% | 3.92% | 3.91% |
| August | 4.03% | 3.99% | 3.97% | 3.96% |
| September | 4.19% | 4.15% | 4.13% | 4.11% |
| October | 4.46% | 4.41% | 4.39% | 4.37% |
| November | 4.83% | 4.77% | 4.74% | 4.72% |