Applicable Federal Rate - AFR
An AFR is a composite of interest rates, useful for tax purposes, primarily when loans are being made to "close parties," i.e. family members.
If the interest rate on either short-, mid-, or long-term loans being proffered to family members is below this IRS minimum rate, then the IRS likely will consider the low interest rate as a gift rather than an actual loan. Whichever party has "borrowed" the money would then be subject to the very cleverly named "gift tax."
Taxes levied. Tears shed. Next time, Uncle Roger pays at least prime.
Related or Semi-related Video
Finance: What is Bond Amortization?7 Views
Finance a la shmoop what is bond amortization? okay fancy term easy
concept the basic idea is that you have to "revalue" what a bond is
actually worth each period which usually means twice a year because bonds pay [Monthly calendar appears]
interest on the you know semester system yeah twice a year so let's say you've
paid seven hundred bucks for a bond with a 5% coupon which comes due for a
thousand bucks in ten years over that time you'll have received two things the
5% per year interest from the bond in cash paid along the way and the [5% interest per year appears]
appreciation of the 700 bucks to become the thousand dollar par value at which
point it will eventually pay back its principal so to amortize the $300 of
appreciation of that bond over ten years while you could attribute 30 bucks a
year in appreciation each year such that after we'll say three and a half years
you'd hold the bond as having appreciated 3.5 times 30 bucks or $105 [Straight line appreciation formula appears]
in appreciation making the bond worth at that point in time eight hundred five
dollars oh yeah fancy but also pretty easy
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Time to learn about the IRS. On the bright side, it'll be less painful than an STD, less emotionally manipulating than PMS, and less time-consuming...