Imputed Interest
Response to the following questions:
1. a. What are Applicable Federal Rates (AFRs)? What purpose do they serve?
b. How is the imputed interest on a below market loan computed?
2. Gift Loans:
Janet's parents lend Janet and her husband $125,000 to buy a new home. The loan is for ten years with no interest.
a. Must interest be imputed on the loan? If so, how would the amount of imputed interest be determined?
b. If the loan amount were $100,000, would interest have to be imputed? If so, how would the amount of imputed interest be determined?