Minimum-Interest Rules

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DEFINITION of 'Minimum-Interest Rules'

A law that requires that a minimum rate of interest be charged on any loan transaction between two parties. The minimum-interest rules mandate that even if no rate is charged by the lender, an arbitrary rate shall be automatically imposed upon the loan. The minimum-interest rules are at least partly intended to prevent excess gifting between taxpayers via intra-family loans with no or below-market interest rates.

BREAKING DOWN 'Minimum-Interest Rules'

Minimum-interest rules are fairly complex and have been subject to numerous changes and modifications. There are separate rules for personal and commercial loans and sales of property that are financed by the seller. For more information, consult Sections 7872, 1274 and 483 of the Internal Revenue Code.

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RELATED FAQS
  1. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  2. When capitalizing interest, will interest accrue while you are in a deferment?

    When capitalizing interest, interest accrues while a person is in a deferment of his loan. In the event of a deferment, the ... Read Full Answer >>
  3. Why is more interest paid over the life of a loan when it is capitalized?

    More interest is paid over the life of a loan when that interest is capitalized because the capitalized interest is added ... Read Full Answer >>
  4. What are some examples of simple interest loans?

    Two good examples of simple interest loans are simple interest car loans and the interest owed on lines of credit such as ... Read Full Answer >>
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