On Feb 1, 5:46*am, JoeTaxpayer <JoeTaxpa...[at]comcast.net> wrote:
- quote -

Thanks. I wasn't aware of that. I don't see that information
in the online IRS Pub 950, which is still the 2008 version.


- quote -

Thanks for the pointer. I have some follow-up questions, if I may;
mostly just curiosity.


1. Is this (i.e. how to determine imputed interest rates for interest-
free
loans) discussed in any IRS Pub or other "normal" public document?

I'm just wondering how a "mere mortal" like myself is expected to
learn this information.


2. The AFR tables show essentially the same interest rate for annual,
monthly, et al for short-term loans. Are those all "annual
rates"?

For example, for short-term monthly compounding, the Dec 2008
rate is 1.36%. I assume that does not mean 1.36% per month
(17.60% APR). Right?

Even so, is the "monthly" rate of 1.36% a simply interest rate, or
is it an APR? That is, is the actual monthly rate 1.36%/12, or is
it
(1+1.36%)^(1/12)-1 (RATE(12,0,-1,1+1.36%) in Excel-speak)?


3. Finally, my __real__ question: what amount is actually considered
the gift amount?

Consider this example: a 25-month of $100,000, to be paid
back interest-free in equal payments of $4000 each. The loan
origination date is in Dec 2008.

According to http://www.pmstax.com/afr (see below), we should
use the short-term AFRs. The annual rate is 1.36%, if my
assumption in #2 above is correct.

(Note: The following figures assume 1.36% in the annual
interest rate, not the APR.

(Also, I assume that it is correct to use the AFR as of the loan
origination date as a fixed interest rate. Right?)

For the equivalent amortized loan with no balloon payment,
the monthly payment would be about $4036, and the interest
paid each year would be about $1064, $411, $5 (= $1480 total).

On the other hand, the difference in total payment each year
between the amortized loan and interest-free loan would be
$720, $720, and $40 (= $1480 total).

So in the 1st year, would the gift be $1064, or would it be $720?


- quote -

That's great, if you know what to look for in the first place. I
didn't. But
once you mentioned it, it occurred to me to google "imputed interest
rate"
(without quotes). One search result points to http://www.pmstax.com/afr,
which points to similar information.

Thanks again for the pointers and information.

--
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curiousgeorge408[at]hotmail.com wrote:
- quote -

The chart is fresh (good thing) but the wording here is vague (bad);

http://www.irs.gov/irb/2009-02_IRB/ar08.html

The rates I'd suggest using are in the first chart, and are .81 for
short term, 2.06 mid-term, and 3.57 for a long term loan.
By the way, the gift limit has been increased to $13K/yr, so for you and
spouse, $26K is your limit. If your daughter is married, $52K to gift
from both of you to both of them. That turns into a pretty large amount
of money, even if it's just her.

(For anyone else attempting to answer this - I googled on this topic,
and searched through the IRS site. I found many references to
"Applicable Federal Rate (AFR) and searching on that led me to the IRS
link above.)

Joe
www.blog.joetaxpayer.com

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

I am making an interest-free loan to my daughter.
Technically, I believe the IRS requires that I consider
the some amount of interest at some rate as a gift.
Right?

How do I determine the appropriate interest rate to use?

Would I use an interest rate that is "typically" offered for a
loan in our area? Even so, what type of loan rate would I
choose?

Or would I use an interest rate that I would expect to
earn if I had left the money in, say, a regular savings
account or CD?

I know I do not need to worry about this unless the
interest per plus other gifts might exceed $24K per
year (MFJ).

But I am still interested in knowing the answer, for my
edification, as well as to ensure that I do not exceed
the $24K limit.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >