Updated August 3, 2026. Quick answer: the minimum is the applicable federal rate, the IRS publishes it every month, and which of three rates applies depends on how long the loan runs. We are not going to print a number — any page that does is wrong within weeks.
Which of the three rates applies
Section 1274(d)(1)(A) sets three maturity tiers: not over 3 years uses the federal short-term rate; over 3 but not over 9 years the mid-term rate; over 9 years the long-term rate.
| Loan term | Which rate |
|---|---|
| Not over 3 years | Federal short-term rate |
| Over 3 years, not over 9 | Federal mid-term rate |
| Over 9 years | Federal long-term rate |
Where to get the current figure
The statute requires it: “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.”
And the IRS says where: “Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. The Internal Revenue Bulletin is available through IRS.gov/IRB.” The index is at IRS.gov/applicable-federal-rates.
Go there rather than trusting any figure you read elsewhere, including here. A rate quoted on a blog post is a snapshot of a month that has passed.
The difference between a demand loan and a term loan
This is the structural choice, and it is not obvious:
Demand or open-ended: A demand or gift loan is treated as recurring ANNUALLY. Each year the deemed transfers happen on the last day of the calendar year, and the imputed amount is redetermined against that year’s rate – so the rate risk resets every year.
Fixed term: A term loan is treated as a SINGLE lump-sum transfer at origination: the loan amount minus the present value of all scheduled payments, discounted at the rate in effect on the loan date. That amount becomes original issue discount, reported by the lender and potentially deducted by the borrower over the loan’s life. The figure is locked in once.
In plain terms: a fixed-term loan locks in the rate on the day you sign, and a demand loan re-tests every year. Which is better depends entirely on what rates do afterwards, which nobody knows — but the choice is worth making deliberately rather than by default.
Why charging the rate is usually the simplest answer
Charge at least the applicable rate for the right term and section 7872 stops applying: the loan is not below-market, so nothing is imputed and there is no gift to consider. The lender does have real interest income to report, which is the honest cost of the simplicity.
Charging nothing is also usually fine, for a different reason — the exceptions often reduce the imputed amount to zero. Which depends on the borrower’s investment income.
General information drawn from IRS, Medicare, HUD and state statute and regulation, not legal, tax or financial advice. Continuing-care law is state law and differs materially between states; every figure here is year-labelled and every source named. Powers of attorney, guardianship and trusts are governed by STATE law and differ change, and interest rates published by the IRS change every month – never rely on a rate quoted on any page, including this one. We are not a law firm or a tax adviser, and this is not legal or tax advice.