How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask The Guy Behind the Tree Your Own Ques...

The Guy Behind the Tree
The Guy Behind the Tree, Experienced Investor & Financier
Category: Tax
Satisfied Customers: 1387
Experience:  Don't tax you, don't tax me, tax the guy behind the tree.
2837397
Type Your Tax Question Here...
The Guy Behind the Tree is online now
A new question is answered every 9 seconds

Re IRS AFR Rate Table Please define the length of time ...

Resolved Question:

Re: IRS AFR Rate Table
Please define the length of time for short, mid, and long-term loans. Also, what are the various % AFR''s? I am borrowing $300,000 from a personal friend and need to choose an interest rate that is acceptable to the IRS.
Submitted: 6 years ago.
Category: Tax
Expert:  The Guy Behind the Tree replied 6 years ago.
Actually, the lender is entirely within their rights to charge you zero interest BUT if they do, the IRS will ASSUME an interest rate and "impute" that rate to your friend's income.

On the other hand, if your loan is for business or investment purposes, whatever the interest rate is, that interest expense COULD be deductible for you.

Six month CD rates from banks are in the range of 3-4% these days, depending on how hungry they are for your funds.

Home loans are about 6-7%, secured by real estate.

The vacant lots I am selling carry an interest rate of 9% for people who want to make payments instead of paying all cash.

If your loan is short term (under 1 year) you are quite safe using 4% to 5%. If your loan is medium term (1-3 years) I would use 6%. For a longer term I would use 7%. These are reasonable, an approximation of market rates, and are unlikely to arouse any undue attention should either of you get audited.
Customer: replied 6 years ago.
But the current interest rate for long term on the IRS "AFR Table" is as follows:
AFR        4.13%
110%AFR     4.55%
120%AFR     4.95%
130%AFR     5.36%
Can I use the 4.13% ? What do the others mean?
Expert:  The Guy Behind the Tree replied 6 years ago.
The IRS itself uses Applicable Federal Rates for certain purposes. They are discussed here:

http://www.smbiz.com/sbrl004.html

The Federal definitions for short, intermediate and long term loans are also defined there. Their cutoffs are 3 and 9 years (under 3 is "short", between 3 and 9 is "intermediate", and over 9 is "long".)

Note at the bottom of the cited page, the Blended Annual Applicable Federal Rate for 2007 at 4.92%. The text advises the use of specified rates for given loan originations, and cites the specific revenue rulings.

But in my experience, using an attractively low rate for a commercial loan (not "shareholder-corporation" or other "insider" situation) risks a review by IRS auditors. Few if any "arms-length" transaction between willing borrowers and lenders are made at rates as low as some of the tables imply. The IRS can impute a higher rate if they feel the circumstances warrant.
The Guy Behind the Tree, Experienced Investor & Financier
Category: Tax
Satisfied Customers: 1387
Experience: Don't tax you, don't tax me, tax the guy behind the tree.
The Guy Behind the Tree and 8 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.