Saturday, September 18, 2010

October Applicable Federal Rates ("AFR")

Every month the government establishes what is known as the Applicable Federal Rate for the charging of interest rates in related party transactions. The Section 7420 rate is now down to 2%. This is a historic all time low water mark for interest rates.

If one wanted to make a loan to a child over $10,000.00 the IRS requires that the loan bear interest at certain minimum rates. For loans repayable within three (3) years [the "short-term" rate] the minimum interest rate in October is .41%. The "mid-term rate" for loans over 3 years but less than nine (9) years to maturity is 1.71% for monthly payments. The "long-term rate" for loans over nine years to maturity is now 3.27%. The use of intra-family loans is a wealth shifting device that can be used to enable a younger generation's accumulation of wealth.