IRS Releases Applicable Federal Rates for April 2025
The Internal Revenue Service (IRS) releases Applicable Federal Rates (AFRs) monthly, essential for various federal income tax purposes, including determining the original issue discount, below-market loans, and other tax-related calculations. As of March 19, 2025, the IRS has not yet published the AFRs for April 2025. Typically, these rates are announced in the latter half of the preceding month. Taxpayers and professionals should regularly consult the IRS’s official page on Applicable Federal Rates for the most accurate and up-to-date information.
While awaiting the April 2025 AFRs, it’s beneficial to review the rates from previous months to identify trends and prepare for potential rate changes. Below are the AFRs for March 2025:
| Annual | Period for Compounding | |||
| Semiannual | Quarterly | Monthly | ||
| Short-term | ||||
| AFR | 4.16% | 4.12% | 4.10% | 4.09% |
| 110% AFR | 4.58% | 4.53% | 4.50% | 4.49% |
| 120% AFR | 5.00% | 4.94% | 4.91% | 4.89% |
| 130% AFR | 5.43% | 5.36% | 5.32% | 5.30% |
| Mid-term | ||||
| AFR | 4.21% | 4.17% | 4.15% | 4.13% |
| 110% AFR | 4.64% | 4.59% | 4.56% | 4.55% |
| 120% AFR | 5.06% | 5.00% | 4.97% | 4.95% |
| 130% AFR | 5.49% | 5.42% | 5.38% | 5.36% |
| 150% AFR | 6.36% | 6.26% | 6.21% | 6.18% |
| 175% AFR | 7.43% | 7.30% | 7.23% | 7.19% |
| Long-term | ||||
| AFR | 4.61% | 4.56% | 4.53% | 4.52% |
| 110% AFR | 5.08% | 5.02% | 4.99% | 4.97% |
| 120% AFR | 5.54% | 5.47% | 5.43% | 5.41% |
| 130% AFR | 6.02% | 5.93% | 5.89% | 5.86% |
| Period for Compounding | ||||
| Annual | Semiannual | Quarterly | Monthly | |
| Short-term adjusted AFR | 3.15% | 3.13% | 3.12% | 3.11% |
| Mid-term adjusted AFR | 3.20% | 3.17% | 3.16% | 3.15% |
| Long-term adjusted AFR | 3.49% | 3.46% | 3.45% | 3.44% |
| Adjusted federal long-term rate for the current month | 3.49% |
| The long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) | 3.67% |
| Appropriate Percentages Under Section 42(b)(1) for April 2025
Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, shall not be less than 9%. |
|
| Appropriate percentage for the 70% present value low-income housing credit | 8.02% |
| Appropriate percentage for the 30% present value low-income housing credit | 3.44% |
| The applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest | 5.00% |
Source: IRS Revenue Ruling 2025-06
Understanding AFR Classifications:
- Short-term rates apply to debt instruments with maturities of three years or less.
- Mid-term rates are for maturities between over three years and up to nine years.
- Long-term rates cover maturities over nine years.
Significance of AFRs:
AFRs play a pivotal role in several tax-related scenarios:
- Below-Market Loans: When loans are offered at interest rates below the AFR, the difference may be considered imputed income, subject to taxation.
- Original Issue Discount (OID): AFRs help determine the amount of OID, which affects the timing and amount of interest income recognized for tax purposes.
- Installment Sales: In seller-financed transactions, AFRs are used to calculate imputed interest, ensuring that the interest component is taxed appropriately.
Staying Informed:
To remain compliant and optimize tax planning strategies, it’s crucial to monitor the monthly AFR updates. The IRS publishes these rates in the form of revenue rulings, accessible through their official website.
In conclusion, while the AFRs for April 2025 are pending release, reviewing past rates and understanding their applications can provide valuable insights for financial planning and tax compliance. Regular consultation of the IRS’s official publications ensures that taxpayers and professionals stay informed about the latest developments.
