The Australian Financial Review, sometimes known as the AFR, is a daily newspaper published in Australia with a business-focused focus on current business and economic issues in Australia and throughout the world. The newspaper has been regularly published since its creation in 1951 and is situated in Sydney, New South Wales, Australia. It is owned by Nine Entertainment.
The Internal Revenue Service (IRS) only permits a minimum interest rate for private loans, which is known as the appropriate federal rate (AFR). The IRS releases a list of interest rates each month that it regards as the minimum market rate for loans. Any interest rate below the AFR would be subject to taxation.

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Understanding the Applicable Federal Rate (AFR)

The IRS compares the AFR to the interest on loans made to individuals who are linked to one another, such as family members.
You would need to make sure that the interest rate paid is equal to or greater than the minimum appropriate federal rate if you were lending money to a family member.
Three AFRs—short-term, mid-term, and long-term—are released by the IRS. The one-month average of market yields from marketable liabilities, such as US government T-bills with maturities of three years or fewer, is used to calculate short-term AFR rates. The liabilities with mid-term AFR rates have maturities of more than three and up to nine years. Bonds having maturities longer than nine years are used to calculate long-term AFR rates.

Example of How to Use the AFR

The yearly short-term AFR was 1.26%, the mid-term AFR was 1.87%, and the long-term AFR was 2.25%, according to the IRS as of April 2022. Please keep in mind that the IRS may modify these AFR rates.
The AFR rate to be used for a family loan would depend on how long it would take to pay it back.
Say you agreed to lend a family member $10,000 to be repaid over the course of a year. The borrower would be required to pay a minimum interest rate of 1.26% for the loan. In other words, the loan should earn you an interest payment of $126.

Special Considerations

Taxpayers should take into account two aspects while planning to make a loan between related parties in order to choose the appropriate AFR. Loan terms should be short-term (three years or less), mid-term (up to nine years), and long-term (more than nine years) (more than nine years).
The IRS may review the lender and apply imputed interest to the income in order to reflect the AFR rather than the amount actually paid by the borrower if the lender assesses interest at a lower rate than the correct AFR. Additionally, if the loan exceeds the yearly gift tax exclusion, a taxable event may occur and income taxes may be due. The IRS may also impose fines, depending on the situation.

Applicable Federal Rates (AFRs) Rulings

For the purposes of federal income tax, the IRS offers a variety of mandated rates each month. The applicable federal rates (AFRs) are frequently released as revenue decisions.