Family Loan Calculator

Loans between family members are perfectly legal but must be structured as real loans — written note, interest at or above the IRS Applicable Federal Rate (AFR), scheduled repayments — to avoid being treated as gifts. Too little interest and the IRS imputes interest income to the lender and re-characterizes principal as a gift. This calculator sizes a compliant family loan.

Loan amount

Term (years)

AFR rate (current publication)

Loan structure

Balloon amount at maturity (IO)

Monthly payment

$777

Total interest over life

$18,275

Total paid (principal + interest)

$93,275

Annual interest (avg)

$1,827

How the math works

At $75K for 10 years at 4.5% AFR, amortizing monthly: $777/mo = $93,200 total, $18,200 interest. Interest is lender's taxable income (Schedule B); borrower may deduct as mortgage interest if secured by primary residence and properly recorded.

Critical compliance: (1) written promissory note, (2) rate ≥ AFR, (3) actual payments made, (4) lender reports interest income. Skip any of these and the IRS can treat the whole transaction as a gift, triggering gift-tax reporting at the original loan date.

How to Use

Enter loan amount, term, and the AFR rate for your loan term (short/mid/long).
Compare interest-only, amortizing, and balloon structures.
See monthly payment, total interest income to lender, and tax reporting requirements.

Frequently Asked Questions

What is AFR?

IRS-published Applicable Federal Rate — minimum interest rate on family loans to avoid imputed gift treatment. Three tiers: Short-term (≤3 years), Mid-term (3-9 years), Long-term (>9 years). Published monthly; charge at or above. In 2026 ranges roughly 4-5% depending on tier.

Does the lender pay tax on interest?

Yes. Interest received is regular income, reported on Schedule B. The borrower may or may not be able to deduct depending on use of proceeds (mortgage interest if secured by primary residence; business if used for business; typically not for personal use).

Can the loan be forgiven?

Yes, but forgiveness is a gift for that year. A $50K loan forgiven in year 3 is a $50K gift — minus whatever principal had been repaid. Subject to annual exclusion and lifetime exemption rules. Many families structure this intentionally: loan becomes gift gradually via annual forgiveness at the $19K exclusion level.

What about the de minimis exception?

Loans of $10,000 or less between individuals are exempt from imputed-interest rules if not used to buy income-producing property. Above $10K, AFR applies. For loans between $10K and $100K, imputed interest is limited to borrower's net investment income — a modest loophole but rarely used cleanly without a CPA.