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. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  3. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  4. Imputed Interest

    A term that describes interest that is considered to be paid ...
  5. U.S. Treasury

    Created in 1798, the United States Department of the Treasury ...
  6. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
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

    EU Probes Tax Laws To Catch Corporate Cheaters

    Recently, the EU has launched an investigation into tax deals between Amazon and the country of Luxembourg.
  7. Economics

    The Economic and Social Effects of Corruption

    Corruption results in inefficiencies in the operations of emerging economies, and prevents such economies from reaching the maximum level of development.
  8. Taxes

    How To Deduct All Of Your Charitable Donations?

    Donations made to charitable organizations can reduce your taxable income, thus your overall tax bill. But not all donations qualify to be deductable.
  9. Economics

    Can state and local governments in the US run fiscal deficits?

    Discover why most state and local governments do not – or cannot – run fiscal deficits in the same manner as the U.S. federal government.
  10. Professionals

    How are an employee's fringe benefits taxed?

    Discover how receiving fringe benefits can increase total compensation for employees and how it is important to understand how these benefits are taxed.

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center