Updated August 25, 2026. Quick answer: the minimum interest on a family loan is the applicable federal rate, and for September 2026 it is 4.14% on a loan of three years or less, 4.44% over three and up to nine, and 5.06% over nine — each compounded semiannually, which is the figure the statute actually names, from Rev. Rul. 2026-17. The calculator below turns that into dollars and then applies the three exceptions that often make the answer zero.
Which rate the statute names, and why it is the semiannual column
Two different sections do two different jobs. Section 1274(d)(1)(A) sets the tier by how long the loan runs. Section 7872(f)(2) sets the compounding, and it is specific:
In the case of any term loan, the applicable Federal rate shall be the applicable Federal rate in effect under section 1274(d) (as of the day on which the loan was made), compounded semiannually.
26 U.S.C. § 7872(f)(2)(A)
So for a term loan you take the tier for the term, read the Semiannual column, and freeze it at the date of the loan. A demand loan is different in both respects:
In the case of a demand loan, the applicable Federal rate shall be the Federal short-term rate in effect under section 1274(d) for the period for which the amount of forgone interest is being determined, compounded semiannually.
26 U.S.C. § 7872(f)(2)(B)
A demand loan always uses the short-term rate, however long it actually runs, and it re-tests every year. That is not a rounding detail. In September 2026 the short-term rate is 4.14% and the long-term rate is 5.06%; a ten-year loan written as a demand note is priced off the first figure and a ten-year term note off the second. The trade is that the demand note is re-priced every year and the term note is not.
The four columns in the ruling are not four rates to choose between. They are one rate quoted at four compounding frequencies: in September 2026 the short-term 4.14% compounded semiannually and 4.18% compounded annually are the same yield to the second decimal. Across all nine 2026 rulings, all 126 published cells and 378 separate comparisons, the semiannual, quarterly and monthly columns reproduce the annual column to within 1.00 basis points, which is the rulings own rounding. Picking the smallest number in the row does not buy you a lower rate.
The calculator
Your minimum interest
Four numbers and one choice. Nothing is prefilled and nothing is assumed. Rates are September 2026, from Rev. Rul. 2026-17.
The figures it uses, from the rulings themselves
These are Table 1 of each ruling, read from the PDF the IRS published. The calculator above uses the September 2026 semiannual column.
September 2026 — Rev. Rul. 2026-17
| Tier | Annual | Semiannual | Quarterly | Monthly |
|---|---|---|---|---|
| Short-term | 4.18% | 4.14% | 4.12% | 4.10% |
| Mid-term | 4.49% | 4.44% | 4.42% | 4.40% |
| Long-term | 5.12% | 5.06% | 5.03% | 5.01% |
August 2026 — Rev. Rul. 2026-13, which still governs any loan made in that month:
| Tier | Annual | Semiannual | Quarterly | Monthly |
|---|---|---|---|---|
| Short-term | 4.10% | 4.06% | 4.04% | 4.03% |
| Mid-term | 4.35% | 4.30% | 4.28% | 4.26% |
| Long-term | 4.92% | 4.86% | 4.83% | 4.81% |
The rate is set month by month and never retroactively — “During each calendar month, the Secretary shall determine the Federal short-term rate, mid-term rate, and long-term rate which shall apply during the following calendar month.” (26 U.S.C. § 1274(d)(1)(B)). A loan made in August 2026 keeps the August 2026 figure for its whole term; it does not move to the September 2026 one. Every 2026 month is here, each with the ruling that set it.
The three exceptions that often make the answer zero
Most coverage stops at the rate. The rate is the easy part; these three decide whether anything happens at all.
1. The $10,000 day test.
In the case of any gift loan directly between individuals, this section shall not apply to any day on which the aggregate outstanding amount of loans between such individuals does not exceed $10,000.
26 U.S.C. § 7872(c)(2)(A)
Read it precisely: it is a test on any day, on the aggregate of every loan between those two individuals, and a husband and wife count as one person (26 U.S.C. § 7872(f)(7): “A husband and wife shall be treated as 1 person.”). It is not a per-loan test and not an annual average. And it switches off entirely for one kind of borrowing:
Subparagraph (A) shall not apply to any gift loan directly attributable to the purchase or carrying of income-producing assets.
26 U.S.C. § 7872(c)(2)(B)
Nine thousand dollars towards a rental deposit is inside the threshold by amount and outside the exception by purpose.
2. The $100,000 cap, which is a cap and not an exemption.
For purposes of subtitle A, in the case of a gift loan directly between individuals, the amount treated as retransferred by the borrower to the lender as of the close of any year shall not exceed the borrower’s net investment income for such year.
26 U.S.C. § 7872(d)(1)(A)
Below $100,000 aggregate, the amount imputed for income-tax purposes cannot exceed the borrower’s net investment income. Above it, the cap simply does not apply (26 U.S.C. § 7872(d)(1)(D)). And the cap has a floor of its own:
If the net investment income of any borrower for any year does not exceed $1,000, the net investment income of such borrower for such year shall be treated as zero.
26 U.S.C. § 7872(d)(1)(E)(ii)
A borrower whose investment income is $1,000 or less has it treated as zero, so the capped amount is zero and nothing is imputed to either side. That is the ordinary case for the person who actually borrows from a parent. The full mechanics are here. Neither the cap nor the de minimis rule survives a tax-avoidance purpose (26 U.S.C. § 7872(d)(1)(B)).
3. Charging the rate. Charge at least the applicable federal rate for the right tier and the loan is not below-market at all, so section 7872 never engages. The cost is real interest income for the lender, which is the honest price of not having to think about any of the above.
Whatever the calculator returns still has to go into the note
The tier, the semiannual rate and the term only do their job if the loan itself records them, because the written arrangement is what the statute reads. A loan agreement fixes the principal, the rate you are charging, the term and the repayment schedule. LawDepot builds a state-specific one.
LawDepot pays us a commission if you buy through this link — it costs you nothing extra. We are not a law firm and this is not legal advice. Affiliate Disclosure.
The gift tax and the income tax run on different clocks
This is the part that surprises people, and it is one sentence of statute:
In the case of any gift loan which is a term loan, subsection (b)(1) (and not subsection (a)) shall apply for purposes of chapter 12
26 U.S.C. § 7872(d)(2)
Chapter 12 is the gift tax. So for a below-market gift term loan there are two separate answers to the same loan. The income-tax side runs through subsection (a): forgone interest, treated as transferred and retransferred on the last day of each calendar year (26 U.S.C. § 7872(a)(2)). The gift-tax side runs through subsection (b)(1) instead: a single transfer on the day the loan is made, equal to the amount loaned minus the present value of every payment the note requires.
the lender shall be treated as having transferred on the date the loan was made (or, if later, on the first day on which this section applies to such loan), and the borrower shall be treated as having received on such date, cash in an amount equal to the excess of-
26 U.S.C. § 7872(b)(1)
One loan, one gift, valued once, at origination — against an income-tax figure that recurs annually. A demand loan has no such split: its forgone interest is a gift each year, redetermined each year. Either way the annual exclusion applies per donee — $19,000 for 2026, and double that from two spouses (IRS, Frequently asked questions on gift taxes).
There is a second trap in the term-loan version. Once section 7872 has applied to a term loan, the section keeps applying even after the balance falls back under the de minimis threshold:
If this section applies to any term loan on any day, this section shall continue to apply to such loan notwithstanding paragraphs (2) and (3) of subsection (c). In the case of a gift loan, the preceding sentence shall only apply for purposes of chapter 12
26 U.S.C. § 7872(f)(10)
For a gift loan that continuing application is gift-tax only, but it is permanent for that purpose.
What it looks like on $100,000
Three structures, the same $100,000, all interest-free, all originated in September 2026. Worked from the semiannual column of Rev. Rul. 2026-17 and nothing else. These are the amounts before the three exceptions above, which is exactly why the exceptions matter.
| Structure | Rate that applies | Below-market amount | Gift-tax treatment |
|---|---|---|---|
| Demand note (payable when the lender asks) | Short-term, 4.14% | $4,182.85 a year, redetermined every year | Gift each year |
| 3-year term note, repaid at maturity | Short-term, 4.14% | $11,567.62 once, at origination | One gift, valued on day one |
| 5-year term note, repaid at maturity | Mid-term, 4.44% | $19,713.74 once, at origination | One gift, valued on day one |
| 10-year term note, repaid at maturity | Long-term, 5.06% | $39,329.04 once, at origination | One gift, valued on day one |
The demand row is an annual figure and the term rows are one-off figures, so they are not comparable side by side — that is the point of the table. Over ten years the demand note would produce roughly ten of its own row, at whatever the short-term rate is in each of those years; the ten-year term note produces $39,329.04 once and never again. Against a $19,000 annual exclusion per donee, the demand figure fits comfortably inside it and the ten-year term figure does not.
What this does not settle
The calculator prices a loan whose principal is outstanding for a full calendar year and, for term notes, whose principal is repaid in one payment at maturity. An amortising note, a partial year, a mid-year draw or a balance that changes is not modelled here, and the present-value arithmetic for those is genuinely different, not just smaller.
Section 7872(f)(1) sends the present-value method to regulations (26 U.S.C. § 7872(b)(1) and (f)(1)), and this page does not read those regulations. It discounts at the applicable federal rate compounded semiannually, which is the rate the statute names, but a regulation may prescribe conventions this does not apply.
Whether a transfer is a loan at all is a separate question this cannot answer, and it is the one that is actually litigated. Where the line falls is here.
The compensation-related, corporate-shareholder and tax-avoidance categories in section 7872(c)(1) are outside this page, which is about gift loans between individuals. The continuing-care facility exception in 7872(g) and (h) is not covered either.
Sources
- 26 U.S.C. § 7872 — uscode.house.gov
- 26 U.S.C. § 1274 — uscode.house.gov
- Rev. Rul. 2026-17, Table 1 (September 2026 applicable federal rates) — https://www.irs.gov/pub/irs-drop/rr-26-17.pdf
- Rev. Rul. 2026-13, Table 1 (August 2026 applicable federal rates) — https://www.irs.gov/pub/irs-drop/rr-26-13.pdf
- IRS, Applicable Federal Rates index — https://www.irs.gov/applicable-federal-rates
- IRS, Frequently asked questions on gift taxes — irs.gov
Related: How the minimum interest rule works · Lending money to family: the whole picture · Where the line between a loan and a gift falls · The $100,000 exception · Forgiving a family loan · The intra-family mortgage · A family loan in your estate · Gift letter vs family loan · Lending to aging parents · AFR rates by month.
General information drawn from the Internal Revenue Code and the IRS revenue rulings named above, not legal, tax or financial advice. Applicable federal rates change every month, so every rate here is labelled with the month it applies to and the ruling that set it; check the ruling before you rely on a figure, including one of ours. We are not a law firm or a tax adviser.
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