Applicable Federal Rate (AFR) – Explanation and IRS Monthly Updates

The Applicable Federal Rate (AFR) is the minimum interest rate that the Internal Revenue Service (IRS) allows for private loans and other financial transactions between related parties. These rates are published every month in official IRS Revenue Rulings and are essential for tax compliance, estate planning, and business valuations.

AFRs ensure that the IRS can determine whether a loan between individuals or related entities has an adequate interest rate. If a loan is made with an interest rate below the AFR, the IRS may impute interest income for tax purposes.

For monthly IRS Revenue Ruling PDFs with current and past AFRs, visit the
Applicable Federal Rate (AFR) PDF Directory – Monthly IRS Revenue Rulings.

How the IRS Determines the AFR

The AFR is based on the average market yield of outstanding U.S. obligations such as Treasury securities. Each month, the IRS determines the AFR by analyzing market data and publishes the rates for the following month in a new Revenue Ruling.

Every Revenue Ruling includes a table of rates for various terms and related sections of the Internal Revenue Code. These tables are referenced across multiple IRS and Treasury tax applications.

Types of Applicable Federal Rates

The IRS publishes three main AFRs each month, depending on the term of the loan or obligation:

• Short-term AFR – for loans of up to 3 years.
• Mid-term AFR – for loans with terms over 3 years and up to 9 years.
• Long-term AFR – for loans longer than 9 years.

Each rate reflects the yield for U.S. Treasury obligations with comparable maturity periods. These rates apply to loans, installment sales, intra-family transactions, and certain corporate obligations.

Complete List of AFR Categories and Related Rates

Each monthly IRS Revenue Ruling includes several types of rates that serve different tax and valuation purposes. The most common are the short-term, mid-term, and long-term AFRs, but additional related rates are also published every month. Below is a complete overview:

• Short-term AFR – Applies to debt instruments with a term of up to 3 years.
• Mid-term AFR – Applies to instruments with a term of over 3 years and up to 9 years.
• Long-term AFR – Applies to instruments with a term of over 9 years.
• Adjusted AFR (§1288) – Used for tax-exempt obligations to account for the difference between taxable and tax-exempt yields.
• §382 Adjusted Federal Long-Term Rate – Used to calculate limitations on net operating loss (NOL) carryforwards and built-in losses for corporate ownership changes.
• §42 Low-Income Housing Credit Rate – Determines the credit percentages for qualified low-income housing projects.
• §7520 Rate – Used to value annuities, life estates, and remainder interests for estate and gift tax purposes.

All these AFR-related figures are updated monthly in official IRS Revenue Rulings.
For the source PDFs that include these tables, visit the AFR PDF Directory – Monthly IRS Revenue Rulings.

You can also review current-year updates in AFR 2025 Updates – Current IRS Rates and Tax Planning Trends.

Why the AFR Matters for Tax Planning

The Applicable Federal Rate affects how the IRS evaluates loans, installment sales, and intra-family transfers. Using the correct AFR ensures that a loan is not considered a gift for tax purposes and that income is properly recognized.

In estate and gift tax planning, AFRs are used to determine the present value of payments, annuities, and interests in trusts. The §7520 rate (based on the mid-term AFR) is especially important for valuing charitable remainder trusts and grantor retained annuity trusts (GRATs).

Monthly Updates and IRS Sources

The IRS releases a new Revenue Ruling each month with updated AFR tables. Each Ruling specifies the short-, mid-, and long-term rates, along with adjusted and special rates for that month. These are usually published a few days before the start of each month.

To access these official files, go to the IRS Applicable Federal Rates page or review past editions in the AFR PDF Directory.

References

• IRS – Applicable Federal Rates (AFR)
• IRS – Monthly AFR Tables
• IRS – Revenue Rulings Directory

Source: Internal Revenue Service (IRS), U.S. Department of the Treasury.