AFR Rate: Current Applicable Federal Rate (Updated Monthly)

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Meta Title: AFR Rate: Current Applicable Federal Rate (Updated Monthly)

Meta Description: AFR rates are IRS-set minimum interest rates for family loans and intra-company transactions. View current rates and learn how they work.

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      "text": "The AFR rate (Applicable Federal Rate) is the minimum interest rate the IRS requires for family loans, intra-company transactions, and seller-financed sales to be considered legitimate loans rather than gifts. AFR rates are published monthly by the IRS and vary based on loan term: short-term (0-3 years), mid-term (3-9 years), and long-term (over 9 years). Rates are typically lower than commercial rates."
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H1

AFR Rate: Current Applicable Federal Rate

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ANSWER SECTION

The AFR rate (Applicable Federal Rate) is the minimum interest rate set by the IRS each month for family loans, intra-company transactions, and seller-financed sales. If you charge less than the AFR on a loan to family members or related parties, the IRS may impute interest—treating the uncharged interest as a taxable gift from lender to borrower. AFR rates are published monthly and divided into three categories based on loan term: short-term (0-3 years), mid-term (3-9 years), and long-term (over 9 years). These rates are typically lower than commercial lending rates.

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H2: Current AFR Rates (2025)

March 2025 AFR Rates:

Term	Annual Rate	Semiannual	Quarterly	Monthly
Short-term (0-3 yrs)	4.40%	4.35%	4.33%	4.31%
Mid-term (3-9 yrs)	4.14%	4.10%	4.08%	4.07%
Long-term (>9 yrs)	4.49%	4.44%	4.42%	4.40%

How to Use These Rates:

• Annual: Use for loans with annual interest payments
• Semiannual: Use for loans with twice-yearly payments
• Quarterly: Use for loans with quarterly payments
• Monthly: Use for loans with monthly payments

Where to Find Current Rates:

• IRS Revenue Rulings (published monthly)
• IRS.gov search "AFR"
• Most tax preparation software
• Financial websites

Note: Check the IRS website for the most current rates as they change monthly.

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H2: How AFR Rates Work

The Imputed Interest Rule:

If you lend money to a related party at below AFR:

The IRS Calculates:

• What interest you SHOULD have charged (at AFR)
• What interest you actually charged
• The difference = Imputed interest

Tax Consequences:

• Lender must report imputed interest as income
• Borrower may have imputed interest as gift income
• Gift tax may apply to the foregone interest

Example:

• You lend $100,000 to your child at 0% interest
• Current AFR (long-term): 4.49%
• Imputed interest: $100,000 × 4.49% = $4,490
• You must report $4,490 as taxable interest income
• Your child received a $4,490 gift (may require gift tax return)

Exceptions:

De Minimis Exception:

• Loans under $10,000 between individuals
• No imputed interest if not tax-avoidance purpose

$100,000 Exception:

• Loans up to $100,000 between individuals
• Imputed interest limited to borrower's net investment income
• No imputed interest if borrower's net investment income ≤ $1,000

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H2: Common Uses for AFR Rates

Family Loans:

Parent to Child:

• Helping with home down payment
• Business startup funding
• Education expenses
• Must document with promissory note

Sibling to Sibling:

• Consolidating debt
• Emergency funds
• Investment opportunities

Intra-Family Business:

• Shareholder loans
• Intercompany transactions
• Capital contributions structured as loans

Estate Planning:

Installment Sales to Family:

• Sell appreciated property to family member
• Spread capital gains over time
• Must charge at least AFR

Grantor Retained Annuity Trusts (GRATs):

• Use Section 7520 rate (120% of mid-term AFR)
• Transfer appreciation to heirs
• Complex estate planning strategy

Seller Financing:

Installment Sales:

• Seller finances buyer's purchase
• Must charge AFR minimum
• Can be below market but not below AFR

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H2: How to Structure an AFR-Compliant Loan

Documentation Requirements:

1. Written Promissory Note:

• Principal amount
• Interest rate (at or above AFR)
• Term/repayment schedule
• Collateral (if any)
• Signatures of both parties

2. Payment Schedule:

• Regular payment dates
• Principal and interest breakdown
• Amortization schedule for term loans

3. Record Keeping:

• Document fund transfer
• Record all payments
• Issue 1099-INT for interest received over $600

4. Intent to Repay:

• Both parties must intend it as a loan
• Not a disguised gift
• Document borrower's ability to repay

Sample Calculation:

$50,000 Family Loan:

• Loan amount: $50,000
• Term: 5 years (mid-term AFR: 4.14%)
• Monthly payment: $923.67
• Total interest: $5,420

Compare to 0% loan where imputed income would be $2,070/year.

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H2: AFR vs Other IRS Rates

Related IRS Interest Rates:

Rate	Purpose	Current (approx)
AFR	Family loans, intra-company loans	4.14-4.49%
Section 7520 Rate	GRATs, charitable trusts	~5.0% (120% of AFR)
Federal Short-Term Rate	Underpayment penalties	~5%
Federal Long-Term Rate	Certain estate valuations	~4.5%

Section 7520 Rate:

• Used for estate and gift tax valuations
• 120% of mid-term AFR
• Rounded to nearest 0.2%
• Changes monthly

Penalty Rates:

• IRS charges interest on underpayments
• IRS pays interest on overpayments
• Based on federal short-term rate + 3%

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H2: Related Tax Questions

For current AFR rates and tables, see our guide on AFR rates with the complete monthly rate history.

Learn about the definition and calculation of AFR in our guide on applicable federal rate with detailed usage examples.

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