December 2025 Applicable Federal Rates (AFRs): What They Mean for Tax Planning

The IRS has released the Applicable Federal Rates for December 2025, and tax professionals are already reviewing how these numbers affect year-end planning and early 2026 strategies. AFRs influence everything from intra-family loans to installment sales, estate and trust valuations, and corporate financing structures. Because the rates update every month, staying current is essential for compliance and for capturing planning opportunities.

This month’s update reflects shifts in financial markets as Treasury yields continue to move. AFRs follow these movements, which means each month can introduce new considerations for clients and businesses.

Quick Summary: December 2025 Applicable Federal Rates (AFRs)

The IRS has published the following Applicable Federal Rates (AFRs) for December 2025:

• Short-term AFR (0 to 3 years): 3.66%

• Mid-term AFR (3 to 9 years): 3.79%

• Long-term AFR (9 or more years): 4.55%

• Section 7520 rate: 4.60%

These rates are used to determine minimum interest for intra-family loans, calculate present value in estate and gift tax planning, and structure deferred payment and corporate financing agreements.

December 2025 AFRs at a Glance

Here are the annual compounded rates published for December:

Category	Annual AFR	Adjusted AFR
Short-term (0 to 3 years)	3.66 percent	2.78 percent
Mid-term (3 to 9 years)	3.79 percent	2.87 percent
Long-term (9 or more years)	4.55 percent	3.45 percent
Section 7520 rate	4.60 percent	Not applicable

The adjusted AFRs apply to certain deferred payment arrangements and valuation scenarios under specific sections of the tax code. The Section 7520 rate is used for valuing annuities, life estates, remainder interests, and many estate planning structures.

Even small changes in these numbers can shift tax outcomes, which is why practitioners treat AFR updates as a monthly planning checkpoint.

Why These Rates Matter for CPAs and Tax Attorneys

Structuring loans

AFRs establish the minimum interest rate for loans between related parties. This includes family loans, shareholder loans, and loans between commonly owned businesses. When interest is set below the AFR, the IRS can impute interest, which may create taxable income or trigger gift tax issues.

A short-term loan entered into during December can safely use the 3.66 percent rate. Setting the rate correctly at signing protects the taxpayer even if market conditions change later.

Estate and gift planning effects

AFRs and the Section 7520 rate influence many estate planning techniques. Strategies such as grantor retained annuity trusts, charitable remainder trusts, intra-family installment sales, and other structures rely on monthly AFR and 7520 values to calculate present value.

The December Section 7520 rate of 4.60 percent may benefit some strategies and create disadvantages for others. Estate planners often compare multiple months to determine the most favorable timing for a transaction.

Business and corporate financing considerations

Companies that use intercompany loans, deferred payment contracts, or loans from shareholders must comply with AFR standards. The long-term AFR of 4.55 percent affects the interest treatment under several Internal Revenue Code sections, including rules governing original issue discount.

For CFOs and business owners, reviewing debt arrangements during months with meaningful AFR movement can help avoid recharacterization issues and improve tax positioning.

How to Apply AFRs in Practice

Taxpayers must use the AFR that corresponds to the month the loan or transfer is formalized. AFRs do not apply retroactively. Once a new month begins, a taxpayer generally cannot elect a prior rate unless a specific exception applies.

AFRs also influence valuation work. Present value calculations for annuities, remainder interests, and deferred payments are all based on the AFR or Section 7520 rate. Professionals should document the chosen month’s rate in their files and ensure all related calculations match.

Planning Considerations for December 2025

• Review planned loans for early 2026 and decide whether December’s rates offer an advantage.

• Reevaluate estate and trust strategies that depend on the Section 7520 rate.

• Confirm that existing loan documentation is aligned with the current or intended AFRs.

• Consider executing deferred payment agreements or installment arrangements before next month’s rates are released.

Proactive rate management can create compliance protection and strategic advantages. Even modest shifts in AFRs have the potential to influence outcomes for high-value transactions.

Final Thoughts

The December 2025 AFRs provide a new baseline for loan structuring, estate planning, and corporate finance decisions. CPAs, tax attorneys, and business owners should review these rates as part of their year-end strategy and ensure that all agreements and valuations incorporate the correct numbers. Staying current each month reduces IRS exposure and supports stronger, more precise planning.

For professionals who track AFR changes regularly, having a research tool that consolidates IRS updates and presents them clearly can make the process much more efficient. Bizora brings these updates together in one place, which can support smoother research and better informed decision making throughout the year.