Family Loan Interest & Tax Calculator
Lending money to family? The IRS publishes recommended minimum interest rates each month (called the AFR). See what rate to charge, why low or 0% interest is usually safe from gift tax, and how to keep your family loan audit-proof.
1. Loan Parameters
Compared to a commercial loan at 7.5% (which costs $7,079.69 in interest), borrowing via family saves $3,234.18. All $3,845.51 of interest stays within your family rather than going to a bank.
Your interest rate (4.18%) meets or beats the IRS minimum rate (4.18%). The IRS considers this a standard loan with zero gift tax consequences. Keep a signed Promissory Note and payment log for your tax records.
Family Loan Rules — Plain & Simple
Clear, honest answers so you can help your family without tax worries or awkward dinners.
What is the Applicable Federal Rate (AFR)?
Think of the AFR as the IRS's benchmark for a “fair interest rate.” The government wants to ensure wealthy families aren't disguising inheritances as 0% loans. Every month, the IRS publishes this official minimum rate based on current economic conditions.
Can I still lend at 0% or low interest (like 2% or 3%)?
Yes! Most parents and grandparents choose to charge low or 0% interest to help their kids. The IRS simply treats any “missing interest” as a family gift. Because every person can gift up to $18,000 per year tax-free ($36,000 for married couples), almost no everyday family will ever owe a single dollar in gift taxes.
What is the $10,000 exemption rule?
If the total loan balance between you and your borrower is $10,000 or less, IRS minimum rate rules do not apply at all. You can lend at 0% with complete peace of mind, provided the money isn't used to buy income-producing assets like stocks or rental properties.
What documentation do I need to avoid issues?
To protect against IRS audits, Medicaid lookbacks, or mortgage underwriting scrutiny, you only need two things: (1) a signed Promissory Note detailing the loan terms, and (2) an ongoing record of actual payments. Bank of Gaga provides both so your loan is 100% audit-proof.
📋 Your 3-Step Family Loan Checklist
Pick an amount, term, and interest rate (either the IRS AFR or any rate you both agree on).
Print or email our free legal template so you both have an official signed copy for your tax files.
Mark payments as they come in. Bank of Gaga sends automatic receipts and updates the payoff balance.