May Interest Rates

The IRS in Revenue Ruling 2020-11 just published the applicable federal rates of interest (AFR) for May 2020. [IRC 1274(d).] These rates are often used with regard to intra-family loans, in order to avoid an implied gift due to a below-market interest rate charged.

Short-Term Rate: (less than 3 years) is 0.25% whether the period for compounding is annual, semiannual, quarterly or monthly.

Mid-Term Rate: (between 3 and months) is 0.58%.

Long-Term Rate: (longer than 8 years and 11 months) is 1.15%.

IRC 7520 Rate: This rate, used to determine the present value of an annuity (e.g. a GRAT), an interest for life or a term of years (e.g. a QPRT) or a remainder or reversionary interest) is 0.8%.

As previously discussed, in this low-interest rate environment, now might be a good time for some clients to loan cash to family members who may be in much lower (or no) income tax brackets.