AFR rates for October 2026

Recent months

For a family loan, the rate you lock in is the one for the month the loan is made (seller-financed sales use a three-month rule, below). Here are the last three months (annual compounding):

The IRS publishes the next month’s rates in the second half of the current month. We update this page when it does.

What the AFR is, and why family loans care

The Applicable Federal Rate is the minimum interest rate the IRS expects on loans between people who aren’t dealing at arm’s length, like parents and children. The IRS sets three rates each month based on Treasury yields: short-term, mid-term, and long-term. Charge at least the right one and the IRS won’t impute extra interest. (The loan still has to be a genuine debt: a written note, a real expectation of repayment, and actual payments.) Charge less and the tax code fills in the difference for you.

Which rate applies to your loan

• Match the rate to the loan’s term: up to 3 years is short-term, over 3 and up to 9 years is mid-term, and over 9 years is long-term.
• Use the rate for the month the loan is made. For a term loan, that rate stays fixed for the life of the loan, even if rates later rise.
• If your note has a balloon, the term is usually measured to the balloon date, not the amortization period. Ask your tax preparer if you’re unsure.

What happens if you charge less than the AFR

For a cash loan between family members, Section 7872 of the tax code generally treats a below-AFR loan as two transactions: the lender is treated as receiving interest at the AFR (and owes income tax on it), and as making a gift of the interest that wasn’t charged. Two exceptions matter for most families (both count the total of all loans between the same two people):

• $10,000 or less. Gift loans between individuals of $10,000 or less are generally ignored, as long as the money isn’t used to buy income-producing assets.
• $100,000 or less. For income tax, the interest the lender is treated as receiving is capped at the borrower’s net investment income for the year, and treated as zero if that income is $1,000 or less, unless a main purpose of the loan is avoiding tax.

The gift side is bigger than many people expect. For a below-AFR term loan, the gift is the present value of all the interest you won’t charge over the full term, counted in the year the loan is made, and the $100,000 exception doesn’t reduce it. In 2026 each person can give up to $19,000 per recipient without filing a gift tax return (a married couple giving from their own or joint funds can give $38,000), and larger gifts usually just use part of your lifetime exemption. The simplest path is to charge at least the AFR.

Seller-financed sales follow a related rule

If you sell property and carry the note, the minimum-interest test comes from Sections 483 and 1274 instead of 7872. It uses the same AFR table, but the test rate is the lowest AFR in effect during the three months ending with the month you sign a binding sale contract. If the stated rate is too low, part of the sale price is recharacterized as interest, which changes the seller’s capital gain and the buyer’s cost basis. A special rule for sales of land (not houses) between family members caps the test rate at 6%, but it only helps when the AFR is above 6%, which it isn’t today.

Common questions