Calculate potential tax liability on intra-family loans under IRS Section 7872.
The total amount of money lent.
Used to determine Short, Mid, or Long-term rates.
Enter current rate from IRS Rev. Rul. tables.
The percentage actually charged to borrower.
Semiannual (Standard)
Annual
Quarterly
Monthly
IRS Required Interest (Minimum):$0.00
Actual Interest Charged:$0.00
Imputed Interest (Taxable Gift):$0.00
Understanding the AFR Rate Calculator
This calculator is designed specifically for calculating Imputed Interest on private loans, such as those between family members, based on the IRS Applicable Federal Rate (AFR). Unlike a standard mortgage calculator, this tool focuses on tax compliance under Internal Revenue Code Section 7872.
What is the Applicable Federal Rate (AFR)?
The AFR is the minimum interest rate the IRS requires you to charge for private loans. If you lend money (e.g., to a child to buy a house) and charge an interest rate lower than the current AFR, the IRS considers the difference between the required interest and the actual interest as "forgone interest."
This forgone interest is treated as:
Taxable Income for the lender (you pay tax on money you didn't actually receive).
A Gift to the borrower (which may eat into your lifetime gift tax exemption).
How to Use This Calculator
Principal Amount: Enter the total sum of money lent.
Loan Duration: Enter the term in years. This helps determine which AFR tier you should use:
Short-Term: 3 years or less.
Mid-Term: Over 3 years but not over 9 years.
Long-Term: Over 9 years.
IRS Published AFR: Locate the current month's AFR (Applicable Federal Rate) from the IRS website for your specific term (Short, Mid, or Long) and enter it here.
Lender Charged Rate: Enter the interest rate you are actually charging the borrower (enter 0 if it is an interest-free loan).
Compounding: The IRS typically uses semiannual compounding for these calculations, but you can adjust if your loan agreement specifies otherwise.
The Imputed Interest Formula
The calculator determines the total interest required by the IRS using the compound interest formula:
A = P(1 + r/n)^(nt)
Where r is the AFR and n is the compounding frequency. It then subtracts the interest actually generated by your charged rate. The difference is the "Imputed Interest."
function calculateImputedInterest() {
// 1. Get Input Values
var principal = parseFloat(document.getElementById('afrPrincipal').value);
var years = parseFloat(document.getElementById('afrTerm').value);
var afrRate = parseFloat(document.getElementById('afrPublished').value);
var chargedRate = parseFloat(document.getElementById('afrCharged').value);
var compoundingFreq = parseInt(document.getElementById('afrCompounding').value);
// 2. Validate Inputs
if (isNaN(principal) || isNaN(years) || isNaN(afrRate) || isNaN(chargedRate)) {
alert("Please enter valid numbers for all fields.");
return;
}
// 3. Logic: Calculate Total Amount for AFR (Required)
// Rate is percentage, so divide by 100.
// A = P(1 + r/n)^(nt)
var rateDecimalAFR = afrRate / 100;
var totalPeriods = compoundingFreq * years;
var amountRequired = principal * Math.pow((1 + (rateDecimalAFR / compoundingFreq)), totalPeriods);
var interestRequired = amountRequired – principal;
// 4. Logic: Calculate Total Amount for Actual Charged Rate
var rateDecimalCharged = chargedRate / 100;
var amountCharged = principal * Math.pow((1 + (rateDecimalCharged / compoundingFreq)), totalPeriods);
var interestCharged = amountCharged – principal;
// 5. Logic: Calculate Imputed Interest (Difference)
var imputedInterest = interestRequired – interestCharged;
// Handle case where charged rate is higher than AFR (No imputed interest)
var isSafe = false;
if (imputedInterest < 0) {
imputedInterest = 0;
isSafe = true;
}
// 6. Formatting Output
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
});
document.getElementById('resRequired').innerText = formatter.format(interestRequired);
document.getElementById('resCharged').innerText = formatter.format(interestCharged);
var resImputedEl = document.getElementById('resImputed');
resImputedEl.innerText = formatter.format(imputedInterest);
// 7. Status Message Styling
var statusMsg = document.getElementById('afrStatusMsg');
if (isSafe) {
resImputedEl.className = "afr-result-value afr-safe";
statusMsg.innerHTML = "Compliance Check Passed: Your charged rate exceeds the AFR. No imputed interest reporting required.";
} else {
resImputedEl.className = "afr-result-value afr-highlight";
statusMsg.innerHTML = "Compliance Alert: You are charging less than the AFR. The amount above is considered taxable income to you and a gift to the borrower.";
}
// 8. Show Results
document.getElementById('afrResults').style.display = 'block';
}