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Video instructions and help with filling out and completing Imputed interest rules
My name is Kevin Burke I'm a certified financial planner professional and author of the book make your money last a lifetime imputed interest is just what it sounds like it's imputed it's not necessarily or it is not interest that you've actually received so as an example some might even call it phantom income that would be where the income is attributed to you or imputed to you even though you didn't actually receive a check for it well why that is important is because if you have imputed interest and there are some investments where the interest is imputed to you even though you don't have physical receipt of the money you still might owe income tax on that interest and so you have to keep track of that and in fact you'll get a 1099 at the end of the year saying that you receive this computed in turist even though you never got the money in your pocket another reason imputed interest is important where it comes in is something called the AFR's applicable federal rates applicable federal rates when might that come into play well some people like to play games and so the government has come up with with this formula let's say that man named Jim sells a million dollar property to a man named Bob and their agreement is that Bob pays Jim a hundred thousand dollars per year for 10 years well if that's what were to happen then it would appear as if there was no interest paid on the loan of a million dollars and so the government doesn't allow that you have to charge some sort of interest rate in that case otherwise what's happening is Jim is selling the property and trying to claim it as full capital gains which is a lower tax rate so what would happen is there would be an imputed interest implied by their arrangement so some of what Bob was paying the hundred thousand dollars per year would be considered payment for the principal but there would be a an interest rate applied to it an applicable federal rate that would then be a tax Levent to jim he would have to declare this income so this this idea of imputed interest has a couple of different meanings but that's the definition and how imputed interest comes into play.