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 Articles
  1. A Look At National Debt And Government ...
    Bonds & Fixed Income

    A Look At National Debt And Government ...

  2. Forces Behind Interest Rates
    Economics

    Forces Behind Interest Rates

  3. Understanding Credit Card Interest
    Retirement

    Understanding Credit Card Interest

  4. Getting Started On Your Estate Plan
    Options & Futures

    Getting Started On Your Estate Plan

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center