Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

What is the definition of short term loan and AFR rates applicable?

Customer Question
IRS AFR Rate Table Please...

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: 9 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 12 minutes by:
5/1/2008
Tax Professional: The Guy Behind the Tree, Experienced Investor & Financier replied 9 years ago
The Guy Behind the Tree
The Guy Behind the Tree, Experienced Investor & Financier
Category: Tax
Satisfied Customers: 1,387
Experience: Don't tax you, don't tax me, tax the guy behind the tree.
Verified

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.

Ask Your Own Tax Question
Customer reply replied 9 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?
Tax Professional: The Guy Behind the Tree, Experienced Investor & Financier replied 9 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 origination, 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
The Guy Behind the Tree, Experienced Investor & Financier
Category: Tax
Satisfied Customers: 1,387
Experience: Don't tax you, don't tax me, tax the guy behind the tree.
Verified
The Guy Behind the Tree and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask The Guy Behind the Tree Your Own Question
The Guy Behind the Tree
The Guy Behind the Tree
The Guy Behind the Tree, Experienced Investor & Financier
Category: Tax
Satisfied Customers: 1,387
1,387 Satisfied Customers
Experience: Don't tax you, don't tax me, tax the guy behind the tree.

The Guy Behind the Tree is online now

A new question is answered every 9 seconds

How JustAnswer works:

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

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.WMatteson, 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.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, 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.

OrvilleHesperia, 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!!!!

AlexLos 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.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,338 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,980 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Or Lev" S-Corp shareholder question: Does the following rule
quot;For Lane or Lev"S-Corp shareholder question: Does the following rule for deducting health insurance premiums on line 29 of the 1040 apply if the shareholder owns 100% of the company and there are… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
When you make a personal interest only loan to a person, do
When you make a personal interest only loan to a person, do you have to pay Capital Gains, when they pay the loan back in full? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I paid the irs about 99,000 in back taxes and interest in
I paid the irs about 99,000 in back taxes and interest in May,2017, can I apply to get the interest back since I refinanced my home and have no savings,im 74 years old and work . … read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
513 satisfied customers
An S Corporation & its 2 shareholders are selling the assets
An S Corporation & its 2 shareholders are selling the assets of the Corporation. The Corporation provides corporate credit card processing services and its primary assets are the contracts with its cu… read more
Carter McBride
Carter McBride
LLM
262 satisfied customers
What are the forms for reporting Rental Income to the IRS on
What are the forms for reporting Rental Income to the IRS on foreign properties - we collect each month? Is this filed separately from our personal returns?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,083 satisfied customers
2% shareholder insurance - If a 100% Shareholder is on
2% shareholder insurance - If a 100% Shareholder is on payroll and he has an insurance policy but spouse is on Medicare, is the amount of the insurance premiums of owner plus the Medicare that was wit… read more
Carter McBride
Carter McBride
LLM
262 satisfied customers
Is it tax fraud to pay employess under the table. so that
is it tax fraud to pay employess under the table. so that they can still receive payment from social security benefits. … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,804 satisfied customers
2 financial questions: 1. Interest Rate on HH Bonds? 2.
2 financial questions : JA: What state are you in? It matters because laws vary by location. Customer: 1. Interest Rate on HH Bonds ? JA: What steps have been taken so far? Customer: 2. Opinion on the… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
Interest deduction for S corp. finance business (factor) I
Interest deduction for S corp. finance business (factor) I borrow from a bank line of credit. … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
This is an income tax question. I am thinking of Deducting
This is an income tax question. I am thinking of Deducting next years giving to church this year with pending changes to tax law. As I recall, higher income levels reduce schedule allowable deductions… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Personal Estimated Federal Tax/Illinois payment: My federal
Personal Estimated Federal Tax/Illinois payment:My federal and IL taxes deducted on regular basis from pay check as employee. But I have S corp for which I know rough profit at 4th quarter since my ve… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,083 satisfied customers
Regarding Federal tax income Form 4952, should I expect my
Regarding Federal tax income Form 4952, should I expect my client to provide me a form to help me fill out line 1 for "investment interest expense paid"? And if so what is the form number?… read more
abci168
abci168
Principal
27 satisfied customers
IRS auditing 2015 Federal Return regarding reverse mortgage
IRS auditing 2015 Federal Return regarding reverse mortgage accumulated interest on 1098 for $93k. Sent Form 886-A Worksheet for Qualified Loan Limit and Deductible Home Mortgage Interest. … read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,282 satisfied customers
Is the interest one pays on a personal loan a tax deduction?
Is the interest one pays on a personal loan a tax deduction? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,804 satisfied customers
Two questions on federal tax deductibility: 1. We personally
Two questions on federal tax deductibility: 1. We personally paid legal fees for our manufacturer C Corp. The fees were for assistance in preparing a Research & Development tax credit application. Can… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
If a shareholder of an S-Corp, 100% shareholder, who did not
If a shareholder of an S-Corp, 100% shareholder, who did not pay himself a salary in 2016 and owes in excess of 48K when the K-1 comes over to personal tax and all the shareholder's monies are in the … read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
What would the federal and state tax rate percentages be for
What would the federal and state tax rate percentages be for a $7700 IRA early withdrawal in Ohio?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,804 satisfied customers
What is the applicable federal rate on loans in 1917?
what is the applicable federal rate on loans in 1917? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x