/>iThe applicable federal rates (AFRs) under Internal Revenue Code (Code) Section 1274(d) and the Code Section 7520 rate (7520 rate) for a particular month are published by the Internal Revenue Service (IRS) in a Revenue Ruling that is released around the 18th day of the immediately preceding month. Advance knowledge of the rates for the following month provides a window of opportunity for the quick or delayed implementation of income, gift, and estate-tax planning techniques in response to upward or downward trends. The effective implementation and management of interest-sensitive estate planning techniques also involves numerous other factors in addition to the relevant AFR or 7520 rate, including a client’s particular personal and financial circumstances, and should be undertaken only with the advice of competent tax counsel and financial advisors.
The IRS has issued Revenue Ruling 2019-03, which provides the AFRs and 7520 rate for January 2019. Revenue Ruling 2019-03 will appear in Internal Revenue Bulletin 2019-02 dated January 7, 2019.
What is the Applicable AFR? The applicable AFR is the minimum acceptable or safe-harbor interest rate that must apply to loans between related parties (intra-family loans) to avoid adverse income or gift-tax consequences — based on the month in which the loan is made, how frequently interest is compounded, and the length or term of the loan.
AFRs Trending Up. Following an across-the-board increase for November and December 2018, short- and mid-term AFRs for January 2019 generally decreased, making intra-family loans and installment sales to grantor trusts generally more attractive.
January 2019 AFRs Summary. The AFRs for January 2019 are as follows:
| AFR | ANNUAL | SEMI-ANNUAL | QUARTERLY | MONTHLY |
| Short-Term | 2.72% | 2.70% | 2.69% | 2.68% |
| Mid-Term | 2.89% | 2.87% | 2.86% | 2.85% |
| Long-Term | 3.15% | 3.13% | 3.12% | 3.11% |
Historical AFRs. The AFRs for January 2018 through January 2019 are as follows, in reverse chronological order:
| AFR | ANNUAL | SEMI-ANNUAL | QUARTERLY | MONTHLY |
| Short-Term AFRs – For demand notes and notes with a term of three years or less. | ||||
| January 2019 | 2.72% | 2.70% | 2.69% | 2.68% |
| December 2018 | 2.76% | 2.74% | 2.73% | 2.72% |
| November 2018 | 2.70% | 2.68% | 2.67% | 2.67% |
| October 2018 | 2.55% | 2.53% | 2.52% | 2.52% |
| September 2018 | 2.51% | 2.49% | 2.48% | 2.48% |
| August 2018 | 2.42% | 2.41% | 2.40% | 2.40% |
| July 2018 | 2.38% | 2.37% | 2.36% | 2.36% |
| June 2018 | 2.34% | 2.33% | 2.32% | 2.32% |
| May 2018 | 2.18% | 2.17% | 2.16% | 2.16% |
| April 2018 | 2.12% | 2.11% | 2.10% | 2.10% |
| March 2018 | 1.96% | 1.95% | 1.95% | 1.94% |
| February 2018 | 1.81% | 1.80% | 1.80% | 1.79% |
| January 2018 | 1.68% | 1.67% | 1.67% | 1.66% |
| Mid-Term AFRs – For notes with a term in excess of three years but no greater than nine years. | ||||
| January 2019 | 2.89% | 2.87% | 2.86% | 2.85% |
| December 2018 | 3.07% | 3.05% | 3.04% | 3.03% |
| November 2018 | 3.04% | 3.02% | 3.01% | 3.00% |
| October 2018 | 2.83% | 2.81% | 2.80% | 2.79% |
| September 2018 | 2.86% | 2.84% | 2.83% | 2.82% |
| August 2018 | 2.80% | 2.78% | 2.77% | 2.76% |
| July 2018 | 2.87% | 2.85% | 2.84% | 2.83% |
| June 2018 | 2.86% | 2.84% | 2.83% | 2.82% |
| May 2018 | 2.69% | 2.67% | 2.66% | 2.66% |
| April 2018 | 2.72% | 2.70% | 2.69% | 2.68% |
| March 2018 | 2.57% | 2.55% | 2.54% | 2.54% |
| February 2018 | 2.31% | 2.30% | 2.29% | 2.29% |
| January 2018 | 2.18% | 2.17% | 2.16% | 2.16% |
| Long-Term AFRs – For notes with a term in excess of nine years. | ||||
| January 2019 | 3.15% | 3.13% | 3.12% | 3.11% |
| December 2018 | 3.31% | 3.28% | 3.27% | 3.26% |
| November 2018 | 3.22% | 3.19% | 3.18% | 3.17% |
| October 2018 | 2.99% | 2.97% | 2.96% | 2.95% |
| September 2018 | 3.02% | 3.00% | 2.99% | 2.98% |
| August 2018 | 2.95% | 2.93% | 2.92% | 2.91% |
| July 2018 | 3.06% | 3.04% | 3.03% | 3.02% |
| June 2018 | 3.05% | 3.03% | 3.02% | 3.01% |
| May 2018 | 2.94% | 2.92% | 2.91% | 2.90% |
| April 2018 | 3.04% | 3.02% | 3.01% | 3.00% |
| March 2018 | 2.88% | 2.86% | 2.85% | 2.84% |
| February 2018 | 2.66% | 2.64% | 2.63% | 2.63% |
| January 2018 | 2.59% | 2.57% | 2.56% | 2.56% |
Note that the “blended annual rate” under Code Section 7872(e)(2)(A) may be used to determine the interest on a demand loan (i.e., a loan which can be called in at any time) with a fixed principal amount outstanding for an entire year.
What is the 7520 Rate? The 7520 rate for the month in which a lifetime gift or testamentary transfer occurs is used to determine the gift- or estate-tax value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest. In the case of a charitable life estate or remainder, however, the 7520 rate for the month in which the lifetime gift or testamentary transfer occurs or a rate for either of the two preceding months may be used to determine its income-, gift-, or estate-tax value. The 7520 rate is equal to 120% of the applicable mid-term rate using semi-annual compounding, adjusting the resulting rate to produce an equivalent yield for annual compounding, and then rounding it to the nearest two-tenths of a percent.
7520 Rate for January 2019. The 7520 rate for January 2019 is 3.4%.
7520 Rate Trending Down. The 7520 rate increased to 3.6% for November 2018 and December 2018. It decreased to 3.4% in January 2019, making planning techniques like qualified personal residence trusts (QPRTs) and charitable remainder annuity trusts (CRATs) less attractive. Conversely, grantor retained annuity trusts (GRATs) and charitable lead annuity trusts (CLATs) have become generally more attractive as a result of this decrease.
Historical 7520 Rates. The 7520 rates for January 2018 through January 2019 are as follows, in reverse chronological order:
| 7520 RATE | |
| January 2019 | 3.40% |
| December 2018 | 3.60% |
| November 2018 | 3.60% |
| October 2018 | 3.40% |
| September 2018 | 3.40% |
| August 2018 | 3.40% |
| July 2018 | 3.40% |
| June 2018 | 3.40% |
| May 2018 | 3.20% |
| April 2018 | 3.20% |
| March 2018 | 3.00% |
| February 2018 | 2.80% |
| January 2018 | 2.60% |
