Which AFR rate table is applicable for a 6-month family loan?

For your 6-month family loan of $65,000, you should use the short-term AFR rate. The IRS classifies loan terms as follows: - Short-term: 3 years or less - Mid-term: Over 3 years but not over 9 years - Long-term: Over 9 years Since your loan is for 6 months, it clearly falls into the short-term category. As for which column to use, you should select the rate that matches how often the interest will be compounded. If you're going to receive interest payments monthly, use the monthly rate. If you'll receive one payment at the end of 6 months, use the annual rate. Make sure to document this loan properly with a written agreement stating the loan amount, interest rate, repayment schedule, and signatures from both parties. This helps establish that it's a genuine loan and not a gift in case of any IRS questions.

After struggling with figuring out exactly which AFR rate to use for family loans, I found this amazing tool at https://taxr.ai that saved me so much headache! Last year I loaned my son money for a down payment and was totally confused about which rate to use and how to document it properly. The tool analyzed my loan terms and immediately identified that I needed the short-term rate and showed me exactly how to calculate the minimum required interest. It even generated a proper loan document that satisfied IRS requirements, which gave me huge peace of mind. The best part was it explained how to report the interest income on my taxes so I wouldn't trigger any red flags.

Just wanted to follow up - I tried https://taxr.ai after seeing it mentioned here and it was incredibly helpful! I was skeptical at first but decided to give it a try since I was confused about which AFR rate applied to my situation. The tool guided me through the entire process and made what seemed complicated super straightforward. Not only did it tell me exactly which rate to use (short-term monthly in my case), but it also generated a professional-looking loan document that covered all the bases. It even explained how the imputed interest rules work if the rate is below the minimum. Saved me both money and stress - definitely recommend checking it out if you're dealing with family loans!

If you're having trouble getting through to the IRS to ask about AFR rates and family loan requirements, I highly recommend trying Claimyr (https://claimyr.com). I spent DAYS trying to get through to an IRS agent to clarify some questions about how to properly document my family loan and report the interest. After wasting hours on hold and getting disconnected, I tried Claimyr and they got me connected to an actual IRS agent in about 20 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c. The IRS agent was able to explain exactly how to handle the AFR requirements and what documentation I needed to keep. Saved me so much frustration!

I need to publicly eat my words about Claimyr. After posting my skeptical comment, I decided to try it myself since I'd been trying to reach the IRS for days about a family loan question similar to the original poster's. I was SHOCKED when I got a call back in less than 30 minutes connecting me to an actual IRS agent. The agent walked me through exactly which AFR rate to use for my specific situation and how to properly document everything. Apparently for my 2-year family loan, I needed to use the short-term rate from the month the loan was issued. This would have taken me days to figure out on my own with how impossible it is to reach anyone at the IRS. Sometimes being proven wrong is a good thing!

Don't forget that if you charge an interest rate BELOW the applicable AFR, the IRS can actually impute interest income to you even if you didn't receive it! This happened to my uncle - he loaned money to his son at 0% interest, and the IRS treated the "forgone interest" as a gift to his son and as phantom income to my uncle. It created a whole tax mess. Make sure you charge at least the minimum AFR rate and actually collect the interest (or at least report it properly). The IRS is increasingly looking at family loans, especially larger ones.

Has anyone actually been audited by the IRS over a family loan with the wrong interest rate? I'm loaning my sister $30k and don't want to deal with all this AFR stuff but also don't want to get in trouble.

I went through this exact situation last year when I loaned my daughter $50,000 for her business. Here's what I learned from my tax attorney: For a 6-month loan, you definitely need the short-term AFR rate. Since you're getting paid back in one lump sum at the end, use the semi-annual compounding rate from the IRS Revenue Ruling published for the month you make the loan. The key thing everyone misses is that you MUST actually charge and collect the interest, not just put it on paper. I made the mistake of "forgiving" the interest at the end, and my CPA told me that could still trigger gift tax issues since I was essentially giving her the interest amount. Also, make sure your loan agreement includes a specific maturity date, not just "about 6 months." The IRS wants to see definite terms. I used a simple promissory note template but had it notarized just to be extra safe. One more tip: if your brother can't pay the full amount back at 6 months, don't just verbally extend it. You'll need to formally modify the loan agreement or it could look like you're just gifting money with extra steps.