Afr

[pityjinx]

If I make my son a home loan, do I have to charge the AFR interest. If I go lower I'm still well below the $12,000 per year gift tax limit. There's nothing illegal about charging less than the AFR is there?

Thanks

 

[seniorjudge]

I have no idea what you are talking about.

What is AFR?

In any event, you may make a bona fide loan to your son or me or the milk man for any interest rate you wish.

 

[pityjinx]

IRS Stuff

AFR = adjusted federal rate
It's set monthly. For Apr '08 long-term loans it is 4.9%.
If I make a zero percent interest loan, the feds can charge me income taxes on 4.9% even tho I didn't get that money. It's a way for them to keep people from cheating on the gift tax. However, my son's loan would be so small that there's no way in he!! that the interest would add up to the allowable untaxable $12,000 gift. There would be no red flags thrown by going lower than the AFR, I just need to know if it's legal to do so.