Applicable Federal Interest Rates for December 2022

The IRS recently published its Applicable Federal Rates (AFRs) for December 2022.

What is the Applicable Federal Rate (AFR)?
The applicable federal rate (AFR) is the minimum interest rate permitted by the Internal Revenue Service (IRS) on private loans, including loans between family members. Generally, they are significantly lower than commercial lending rates. If lenders charge below AFR, there may be tax implications for lender and borrower alike.

AFRs are based on the average yields of marketable obligations of the United States government, such as U.S. Treasury bills. The IRS issues updated AFRs every month.

Short-term interest rates
Short-term AFRs apply to loans with a maturity period of three years or less.

• Annual: 4.55%
• Semi-annual: 4.50%
• Quarterly: 4.47%
• Monthly: 4.46%

Mid-term interest rates
Mid-term AFRs apply to loans of more than three years but not more than nine years.

• Annual: 4.27%
• Semi-annual: 4.23%
• Quarterly: 4.21%
• Monthly: 4.19%

Long-term interest rates
Long-term AFRs apply to loans of more than nine years.

• Annual: 4.34%
• Semi-annual: 4.29%
• Quarterly: 4.27%
• Monthly: 4.25%

Adjusted AFR for Compounding
The Adjusted AFR is used to determine the compounding interest rate over a period of time.

Short-term interest rates
Short-term AFRs apply to loans with a maturity period of three years or less.

• Annual: 3.45%
• Semi-annual: 3.42%
• Quarterly: 3.41%
• Monthly: 3.40%

Mid-term interest rates
Mid-term AFRs apply to loans of more than three years but not more than nine years.

• Annual: 3.24%
• Semi-annual: 3.21%
• Quarterly: 3.20%
• Monthly: 3.19%

Long-term interest rates
Long-term AFRs apply to loans of more than nine years.

• Annual: 3.29%
• Semi-annual: 3.26%
• Quarterly: 3.25%
• Monthly: 3.24%

Code Sec. 1288(b) interest rates
The Code Sec. 1288(b) interest rates, when using annual compounding, are:

• Short-term rate is 3.45 percent.
• Mid-term rate is 3.24 percent.
• Long-term rate is 3.29 percent

Code Sec. 382
The Code Sec. 382 adjusted federal long-term rate is 3.29%, and the long-term tax-exempt rate is 3.29 percent.

Code Sec. 42(b)(1) Percentage
The low-income housing tax credit is a federal income tax credit available each year for ten years which results in reduction of the taxpayer’s regular tax liability.

The appropriate interest rate for the low-income housing credit is:

• 8.00% for the 70% present-value, low-income housing credit, and
• 3.43% for the 30% present-value, low-income housing credit.

Code Sec. 7520 AFR
Code Sec. 7520 AFR is used to discount the value of annuities, life estates, and remainders to present value. It is equal to 120% of the mid-term AFR.

• Current Code Sec. 7520 AFR: 5.20%