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 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 is that important? It 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. Therefore, you have to keep track of that, and in fact, you'll get a 1099 at the end of the year saying that you received this computed interest even though you never got the money in your pocket. Another reason imputed interest is important is where it comes into play with something called the AFRs (Applicable Federal Rates). When might that come into play? Well, some people like to play games, and so the government has come up with this formula. Let's say that a 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...
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Imputed interest rules Form: What You Should Know
Imputed Interest is the interest that the IRS determines the lender would have received subject to these rates. Oct 8, 2023 — For tax years beginning after 1/1/2023 (or if October 8 is later than the 1st day of the month for which the interest is to be calculated), the IRS will use the annual AFR rate as the rates from which to calculate imputed interest, based on certain adjustments to the formula. Oct 8, 2023 — If you want to calculate the imputed tax for the month, use the IRS quarterly imputed tax for that month, and use the AFR rates from the last quarter that have not already been calculated. You can figure the imputed tax by using the imputed tax rate in the following table. The IRS imputed tax rate for the first quarter begins on the date the interest is paid, regardless of when the interest is collected. For a month that begins on a later date than the interest payment date, you will need to add to the imputed tax a penalty of 4%, or 1⁄4 of the imputed tax rate. For example, if the imputed tax rate for a month is 10%, and you want to calculate the imputed tax using an interest payment date of 1/1/19, you will have to add that rate to the imputed tax rate, to get a 4% imputed tax rate. The quarterly imputed tax rate for a quarterly payment date begins at the beginning of the last quarter before the quarter in which you want the imputed tax to start. Note: The first quarter ending 3/31/2022 is not included in this calculation. The following table shows the imputed tax calculation for the 2023 calendar year. Calculating the Imputed Interest Rate Oct 8, 2023 — If you want to calculate the interest paid, use the IRS quarterly imputed tax for that month. The interest rate in the table is calculated as if The following table shows the monthly imputed tax for the 2023 calendar year. Calculating the Monthly Imputed Tax Rates Oct 8, 2023 — The quarterly imputed tax rate begins the 30th day of the month immediately following the first quarter in which you want the imputed tax to start. If you want to calculate the imputed interest on the interest payment date as of the 30th day of the month, simply add 3% to the monthly imputed tax rate for the quarter to get the annual imputed rate.
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