The IRS minimum interest rate (AFR, annual compounding) for July 2026: 4.00% for loans up to 3 years, 4.35% for loans of 3–9 years, and 4.98% for loans over 9 years. Charging less than the AFR on a family loan can trigger imputed interest and gift tax consequences.
IRS Minimum Interest Rate Calculator (AFR)
Check the minimum rate the IRS expects on a family loan this month — and estimate the imputed interest if you charge less.
What is the Applicable Federal Rate?
The AFR is the minimum interest rate the IRS publishes every month for private loans, based on current Treasury yields (section 1274(d)). There are three tiers: short-term for loans up to 3 years, mid-term for over 3 up to 9 years, and long-term for anything over 9 years. Lend to a family member below the applicable AFR and section 7872 lets the IRS treat the loan as below-market: the foregone interest is taxed as if you had received it, and is simultaneously treated as a gift to the borrower.
The exceptions worth knowing
$10,000 or less — gift loans between individuals are exempt from the imputed-interest rules, unless the borrowed money is used to buy income-producing property.
$100,000 or less — for gift loans up to $100,000, imputed interest is capped at the borrower’s net investment income for the year, and drops to zero when that income is $1,000 or less. Many family loans fall under this ceiling in practice.
Demand loans — for loans without a fixed term that are outstanding the whole year, the IRS publishes a blended annual rate each July (3.82% for 2026).
How to stay compliant
Three habits keep a family loan clean: charge at least the AFR for the month you make the loan, put the terms in a signed written note, and keep a record of every payment. The rate is locked at signing — future AFR changes do not affect an existing term loan.
Frequently asked questions
What is the minimum interest rate for a family loan right now?
It depends on the term. The IRS publishes three Applicable Federal Rates each month: short-term (up to 3 years), mid-term (3–9 years) and long-term (over 9 years). The current annual-compounding rates are shown at the top of this page and update monthly.
What happens if I charge 0% on a family loan?
For loans above the exemption thresholds, the IRS treats the interest you should have charged (at the AFR) as imputed interest: taxable income to you, and potentially a gift to the borrower that counts against your annual gift-tax exclusion. Small loans are often saved by the $10,000 and $100,000 exceptions — but the clean solution is simply to charge at least the AFR.
Which month’s AFR applies to my loan?
The AFR for the month in which you make the loan — when you sign the note and hand over the money. For a fixed-term loan that rate stays valid for the entire term, even when later AFRs rise or fall.
Where does the IRS publish these rates?
In a monthly revenue ruling, usually around the 20th of the preceding month, published on irs.gov under Applicable Federal Rates. The rates on this page come straight from those rulings (annual compounding, Table 1) and we refresh them every month.
Is charging the AFR enough to make it a real loan in the eyes of the IRS?
The rate is one signal. The IRS also looks for a written note, a fixed repayment schedule, and actual repayments. A signed agreement plus a clean payment history — exactly what Family Loan Tracker produces — is the strongest evidence that it is a loan, not a gift.
Put this loan on autopilot
Family Loan Tracker turns your numbers into a live loan: payment schedule, balance tracking, automatic reminders, and a clear history both sides can see.