Otherwise, your daughter generally cannot deduct the interest. On your daughterвЂ™s side of the deal, she can deduct the interest as home mortgage interest as long as you secure the loan with her home (a relatively simple legal procedure). On your side of the deal, you must include the interest income on your tax return (no surprise). The kid can pay that same super-low rate for the entire 20 years. Just charge interest equal to the long-term AFR, which is currently only 2.30%. Your daughter can pay that same super-low rate for the entire nine years.ДЄnd if you want to make a 20-year loan instead? No problem. You could make a nine-year term loan with a balloon repayment at the end and charge the mid-term AFR, which is currently only 1.53%. Say you want to lend $50,000 to your adult daughter so she can buy her first home. AFRs for each month are published in Internal Revenue Bulletins and can be found at the IRS website With a term loan, the AFR on the month you make the loan applies for the entire loan term. TodayвЂ™s super-low AFRs reflect the current super-low interest rate environment, which may not last much longer. Wow, those are some pretty low rates! However, AFRs are updated monthly in response to bond market conditions. * 2.30% for вЂњlong-termвЂќ loans over nine years. * 1.53% for вЂњmid-termвЂќ loans over three years but not over nine years.

* 0.43% for вЂњshort-termвЂќ loans of up to three years. The current AFRs for term loans, which means loans with a defined repayment schedule or a specific balloon payment due date, are as follows (based on loans made this month that charge interest based on annual compounding).

Because AFRs are almost unbelievably low right now, you can be nice to yourself by charging the AFR while still being plenty nice to the borrowing family member as well. But you can avoid all the tax complications if you instead charge an interest rate that at least equals the IRS-approved applicable federal rate (AFR). If you make a loan to a family member and charge zero interest, you may face unfavorable and complicated tax rules, as IвЂ™ll explain later.

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