Today, we will continue our video series about lending money to family and friends.
…And The next point I want to cover is Setting your interest rate on your loan: It’s important to familiarize yourself with applicable federal rates or AFRs. AFRs are used for various purposes under the tax code, including the minimum interest rate, based on market loan rates, that the Internal Revenue Service permits for private loans. There could be tax implications if the loan to your family member charges an interest rate that is less than the AFR, depending on the amount of the loan. The annual midterm AFR (which is for a loan period of three to nine years) is 3.7%, as of this recording. The IRS publishes updated rates monthly. It also is essential for audit purposes to maintain documentation of the amount lent and at what rate.
ou can WATCH the full video here.