Inter-family loans

Family members make loans frequently within their family sphere. This can be of great benefit to both parties. I am often asked what interest rate should be applied when making an inter-family loan. The Applicable Federal Rate is most frequently utilized to ensure a fair and defendable rate to a family member. Aside from remaining compliant to avoid a loan appearing as a gift, it is easily defendable and is updated by the federal government on a regular basis. It is a guide the IRS formulated for private loans within individuals. The published rates are segmented into short-term, mid-term and long-term interest rates available as a standard for a minimum interest rate that should be applied to your loan. Please refer to the current IRS tables published each month.

The information contained herein is based on our understanding of current tax law. The tax and legislative information may be subject to change and different interpretations. We recommend that you seek professional legal advice for applicability to your personal situation. As required by the IRS, you are advised that any discussion of tax issues in this material is not intended or written to be used, and cannot be used, (a) to avoid penalties imposed under the Internal Revenue Code or (b) to promote, market or recommend to another party any transaction or matter addressed herein.