Applicable Federal Rate - AFR

What is the 'Applicable Federal Rate - AFR'

The applicable federal rate (AFR) consists of 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.

BREAKING DOWN '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. Imputed Interest

    A term that describes interest that is considered to be paid ...
  2. Call Loan

    A loan provided to a brokerage firm and used to finance margin ...
  3. Gift Tax Return

    A federal tax form that must be filled out by any individual ...
  4. Gift Tax

    A federal tax applied to an individual giving anything of value ...
  5. Term Loan

    A loan from a bank for a specific amount that has a specified ...
  6. Blended Rate

    1. An interest rate charged on a loan, which is in between a ...
Related Articles
  1. Markets

    How Banks Set Interest Rates on Your Loans

    Many factors go into how banks set interest rates for loans. Use this information to negotiate the best possible rate when you're borrowing.
  2. Personal Finance

    10 Sources Of Nontaxable Income

    Taxes are often a deterrent from investing and saving. These financial practices will bring you no tax grief.
  3. Markets

    Split Dollar Life Insurance: How it Works

    Understanding how split dollar life insurance plans are designed and what tax regulations they must follow.
  4. Personal Finance

    Ten Things That You Might Not Know Are Taxable

    When you file your taxes this year make sure that you have claimed all taxable income. Here are ten things that you might not know are taxable
  5. Investing

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  6. ETFs & Mutual Funds

    How Interest Rates Affect Mutual Funds

    Find out how changing interest rates impact mutual funds, including bond and money market funds, and how higher rates can discourage investors.
  7. Personal Finance

    Disadvantages of Federal Direct Loans

    Federal Direct Loans are popular ways to get federal help with college costs. However, they do have some drawbacks, especially for graduate students.
  8. Investing

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  9. Personal Finance

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  10. Personal Finance

    Benefits of Federal Direct Loans

    Federal Direct Loans are the most popular federal student loans. This list of benefits will explain why.
RELATED FAQS
  1. Should I get a variable rate student loan?

    I'm cosigning a loan for my daughter for college. With a variable rate, what is the max interest rate they can charge? Is ... Read Answer >>
  2. How does the gifting process work with a deed transfer?

    My parents own a home that they would like to "gift" to my husband and me. The house is in my parents name and they want ... Read Answer >>
  3. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >>
  4. Is the marginal tax rate a progressive tax?

    Learn how the marginal tax rate is a progressive tax that takes a higher percentage of income tax from high-income earners ... Read Answer >>
  5. Federal student loan rates: who sets them, why they vary

    Federal student loan rates are set by Congress, not by banks. Learn more about who gets what rate, and how often they get ... Read Answer >>
  6. What's the difference between the prime rate and the discount rate?

    Learn more about the prime rate and the discount rate and how the Federal Reserve uses these rates in the U.S. economy. Explore ... Read Answer >>
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center