Rates last updated: August 2026, from IRS Revenue Ruling 2026-13.
A client calls about lending $500,000 to a family member over seven years and wants to know the minimum rate they can charge without triggering gift tax or phantom interest. You need the current mid-term AFR, and you need to know it traces to the actual IRS ruling, not a stale blog post from three months ago.
Bizora refreshes this page within 48 hours of every new AFR revenue ruling, with the governing citation shown next to each rate so you can verify it yourself. If you landed here from an older monthly AFR post (like a December 2025 or February 2025 AFR update), this is the evergreen table that stays current.
The Applicable Federal Rate is the IRS-published minimum interest rate for loans and certain deferred-payment transactions. If you charge less than the AFR on a loan between related parties or structure an installment sale without adequate stated interest, the IRS imputes phantom interest income to the lender and recharacterizes part of the transaction.
The AFR changes monthly. Each month's rates come from a numbered revenue ruling published in the Internal Revenue Bulletin, typically released between the 15th and 20th of the preceding month. The rate in effect when a binding contract is signed governs that transaction.
Source: IRS Revenue Ruling 2026-13, effective for loans and sales made in August 2026.
The Section 7520 rate is used to value GRATs, charitable remainder trusts, qualified personal residence trusts, and other split-interest transfers. It's derived from 120% of the annual mid-term AFR, rounded to the nearest 0.2%. Revenue Ruling 2026-13 publishes that 120% mid-term figure as 5.23% in Table 1 of the ruling, not a simple 4.35 times 1.2, since the IRS converts the underlying semiannual rate to an annual-equivalent basis before applying the multiplier, and 5.23% rounds to the published 5.20% Section 7520 rate. The IRS's Section 7520 interest rates page confirms the same figure each month.
Which rate applies depends on term: a three-year note uses short-term, a seven-year note uses mid-term, a fifteen-year note uses long-term. The rate in effect the month the binding contract is signed applies, and for a term loan it stays locked for the life of the loan.
Section 7872 governs loans between related parties, including family members, employer-employee relationships, and corporation-shareholder arrangements. If the stated rate is below the AFR for the term, the IRS treats the shortfall as "forgone interest," imputed back to both parties.
The mechanics work like this: the lender is treated as having received phantom interest income equal to the forgone amount, and the same amount is treated as transferred to the borrower as a gift, dividend, or compensation. Charging at least the AFR in effect the month the loan is made avoids the imputation entirely.
Your client wants to lend $500,000 to their adult child for a business investment, with repayment over seven years. A seven-year term falls in the mid-term category (over 3 years, up to 9 years).
Using the August 2026 annual mid-term AFR of 4.35%, the loan must charge at least 4.35% interest to avoid imputed interest under Section 7872. At that rate, annual interest on the $500,000 principal is $21,750. By documenting the loan at 4.35% (or higher) with a written note signed in August 2026, the client locks that rate for the full seven-year term, regardless of where AFRs move in future months.
If the client charged 2% instead, the 2.35% shortfall (4.35% minus 2%) would be treated as forgone interest. The lender would report phantom interest income of approximately $11,750 annually, and the same amount would be characterized as a taxable gift from lender to borrower.
Aggregate loans of $10,000 or less between the same parties escape imputation if the funds are not used to buy income-producing assets. For gift loans up to $100,000, imputed interest is capped at the borrower's net investment income, and if that income is $1,000 or less it is treated as zero.
When a deferred-payment sale does not charge adequate stated interest, part of the purchase price gets recharacterized as interest under Section 483 or Section 1274. "Adequate" generally means a stated rate at least equal to the AFR for the term of the payments.
Section 1274 applies to most seller-financed property sales and treats the shortfall as original issue discount (OID), reported on an accrual basis. Section 483 applies in narrower situations, typically smaller or shorter transactions, with unstated interest reported as payments are received. For more on structuring these transactions, our guide to capital gains tax planning with 1031 exchanges and installment sales covers the mechanics in more depth.
Section 1274A caps the discount rate used for purposes of Sections 483 and 1274 at 9%, compounded semiannually, for qualifying debt below an inflation-adjusted threshold. For 2026, that threshold is $7,462,600 for a standard qualified debt instrument and $5,330,500 for a cash-method debt instrument, per Rev. Proc. 2025-32.
Those figures adjust annually; the $2,800,000 and $2,000,000 amounts sometimes cited elsewhere are the frozen 1989 statutory base, not the current threshold. At August 2026 AFR levels, this ceiling isn't binding regardless.
Section 453A applies only to installment obligations from sales where the price exceeds $150,000. The interest charge on deferred tax liability is triggered when the aggregate face amount of qualifying obligations arising in the current taxable year and outstanding at year-end exceeds $5 million, calculated using the Section 6621(a)(2) underpayment rate (the federal short-term rate plus 3 percentage points), not the AFR itself.
The Section 7520 rate for August 2026 is 5.20%. This rate is distinct from the AFRs used for loans and sales.
Section 7520 governs the valuation of annuities, life estates, and remainder interests in split-interest transfers. It applies to GRATs (grantor retained annuity trusts), charitable remainder trusts, charitable lead trusts, qualified personal residence trusts, and private annuities.
The rate is derived from the AFR: 120% of the annual mid-term AFR, rounded to the nearest two-tenths of a percent. Revenue Ruling 2026-13 publishes that 120% figure as 5.23% for August 2026, which rounds to the published 5.20% rate.
The IRS publishes every AFR revenue ruling at the IRS AFR index, and each ruling also appears in the weekly Internal Revenue Bulletin. That's the primary authority.
Bizora traces the current rate for any AFR category back to the exact revenue ruling, with the citation and reasoning path visible through View Steps. If you're drafting a memo on a below-market loan or installment sale, Canvas can pull the current AFR into the draft with the citation attached, so you spend less time verifying numbers and more time analyzing the position. For step-by-step guidance on building those memos, see our guide on writing a tax research memo and citing the IRC correctly.
Stale rates create real problems in practice. A memo citing last month's AFR for this month's loan documents incorrectly, and a Section 7520 valuation using the wrong month's rate misstates the remainder interest.
The Section 6621 rate governs interest on tax underpayments and overpayments. It's set quarterly based on the federal short-term rate plus a statutory spread: 3 percentage points for underpayments and non-corporate overpayments, 2 points for corporate overpayments, reduced to 0.5 points on the portion of a corporate overpayment exceeding $10,000.
The Section 7872 blended annual rate, published once per year, is the shortcut rate for demand loans that maintain a constant principal balance for the full calendar year. It only applies to demand loans, not term loans.
Adjusted AFRs under Section 1288(b) apply to tax-exempt obligations and appear in the same monthly revenue ruling as the standard AFR table. If you're pulling any of these figures into a memo or a client file rather than just checking them, our walkthrough on extracting tax data and drafting memos in minutes covers that workflow end to end.
The IRS publishes a new AFR revenue ruling every month. The ruling is typically released between the 15th and 20th of the month preceding its effective date. August 2026's rates came from Revenue Ruling 2026-13, released in mid-July.
Bizora monitors for the new ruling as soon as it posts and updates this table within 48 hours, along with the Section 7520 rate and the related benchmarks above.
Most practitioners understand what an AFR is for. The problems arise from applying last month's rate to this month's loan, missing that a term loan locks at signing while a demand loan does not, or not catching that a sale needs Section 1274 treatment instead of Section 483.
The stakes aren't abstract. A loan documented at the wrong AFR exposes the client to phantom income and gift tax consequences that proper structuring would have avoided, and a Section 7520 valuation using the wrong month's rate misstates the gift.
This page draws from the following IRS and statutory authorities:
Short-term 4.10%, mid-term 4.35%, long-term 4.92%, all at annual compounding, from IRS Revenue Ruling 2026-13. The Section 7520 rate is 5.20%.
Short-term applies to loans or obligations of 3 years or less. Mid-term applies to terms over 3 years up to 9 years. Long-term applies to terms over 9 years. Each category has its own rate for each compounding period (annual, semiannual, quarterly, monthly).
Monthly. The IRS publishes a revenue ruling with new rates between the 15th and 20th of the month before the rates take effect.
The shortfall is treated as forgone interest under Section 7872. The lender reports phantom interest income on the shortfall amount, and the same amount is recharacterized as a gift, compensation, or dividend depending on the relationship.
The Section 7520 rate equals 120% of the annual mid-term AFR, rounded to the nearest 0.2%. For August 2026, Revenue Ruling 2026-13 publishes that 120% figure as 5.23%, which rounds to the published 5.20%.
Only to avoid recharacterization of principal as interest under Section 483 or Section 1274. If the sale charges adequate stated interest (generally the AFR or higher), the full stated principal is respected.
At the IRS AFR index. Each ruling also publishes in the weekly Internal Revenue Bulletin.
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