Applicable Federal Rate - AFR

AAA

DEFINITION of 'Applicable Federal Rate - AFR'

Rates published monthly by the IRS for federal income tax purposes. These rates are used to calculate assigned interest charges. Every month, the IRS publishes these rates in accordance with section 1274(d) of the Internal Revenue Code. Interest on loans should not be less than the AFR for the loan to be considered a taxable event and not a gift by the IRS.

INVESTOPEDIA EXPLAINS 'Applicable Federal Rate - AFR'

Short-term AFR rates are determined from the one-month average of the market yields from marketable obligations, such as U.S. government t-bills with maturities of three years or less. Mid-term AFR rates are from obligations of maturities of more than three and up to nine years. Long-term AFR rates are from bonds with maturities of more than nine years. These rates are used to determine the original issue discount, unstated interest, gift tax and income tax consequences of below-market loans.

RELATED TERMS
  1. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  2. Income Tax

    A tax that governments impose on financial income generated by ...
  3. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  4. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  5. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  6. U.S. Treasury

    Created in 1798, the United States Department of the Treasury ...
RELATED FAQS
  1. Are gross sales and taxable gross sales the same thing?

    The terms gross sales and taxable gross sales are not the same thing, and the difference can mean a huge difference in the ... Read Full Answer >>
  2. What is the history of the sustainable growth rate?

    The sustainable growth rate (SGR) can refer to different things. The two most common references are to the Medicare SGR or ... Read Full Answer >>
  3. What is the difference between a regressive tax and proportional tax?

    There are generally three major ways that U.S. taxpayers pay taxes: regressive tax, progressive tax and proportional tax. Proportional ... Read Full Answer >>
  4. Does location matter for taxes when calculating gross sales?

    Tax policies regarding gross sales differ by state and region. Some city jurisdictions, counties and states require a percentage ... Read Full Answer >>
  5. Are progressive taxes ever more unfair that flat taxes?

    Progressive taxes assign a different tax rate to different taxpayers. Affluent taxpayers pay the highest income tax rates ... Read Full Answer >>
  6. Is a progressive tax more fair than a flat tax?

    Progressive taxation versus flat taxation inspires ongoing debate, and both have proponents and critics. In the United States, ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    A Look At National Debt And Government Bonds

    Learn the functions of the U.S. Treasury, and find out how and why it issues debt.
  2. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  3. Retirement

    Understanding Credit Card Interest

    Paying these rates can impact your disposable income and your investment returns.
  4. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  5. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  6. Economics

    What are Pork-Barrel Politics?

    Pork-barrel politics is a form of patronage whereby politicians favor their constituents in exchange for benefits such as campaign donations and votes.
  7. Economics

    Assessing The Pros & Cons of Immigration Reform

    Many of the arguments for and against immigration reform focus on the economic impact of the legislation, including its effect on job growth and wages.
  8. Economics

    Why Lobbying Is Legal And Important In the U.S.

    Political lobbying is again at a heightened spend level, and again being criticized; making it important to remember lobbying's legality and importance.
  9. Economics

    How Lack Of Leadership Is Making Things Worse In Europe

    Lack of effective leadership is impeding the resolution of economic crisis in Europe.
  10. Taxes

    Top 4 Ways to Invest Tax Free

    When you're ready to invest, start by looking at these 4 tax-advantaged ways to build your portfolio and your future.

You May Also Like

Hot Definitions
  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. This is also referred to ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  4. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  5. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
Trading Center