Quick Definition

The Applicable Federal Rate (AFR) is the minimum interest rate set by the IRS for private loans to avoid tax implications.

Examples

• 1A parent loans their child $50,000 to buy a house, and they use the AFR to determine the minimum interest rate to charge to avoid gift taxes.
• 2An investor provides a loan to a startup company and uses the AFR to set the interest rate, ensuring it meets IRS guidelines.
• 3A family sets up an intra-family loan for estate planning purposes, using the AFR to dictate the interest rate and comply with tax regulations.

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