Can anyone provide links to __IRS__ explanations of the rules that govern required interest rates for family loans?
Also, for calculating and reporting taxable interest income for "below-market" family loans?
I can find some webpages written by "tax experts". And I find some discussions in this forum. They are all good.
But I also like to get the information "from the horse's mouth": IRS pubs; IRS rev ruls; IRS forms and instructions; etc.
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Also, the AFR documents are unclear to me.
Are the subannual rates stated as annual rates or as periodic rates?
If they are annual rates (as I assume), is the periodic rate calculated by annual/freq or (1+annual)^(1/freq)-1, treating the AFR as a compounded rate?
For example, for a monthly loan initiated in Feb 2022, is the __monthly__ rate 0.59%, 0.59%/12 (0.049167%) or (1+0.59%)^(1/12)-1 (0.049034%)?
And are there any particular rounding rules?
For example, for Section 7520 interest rates (*), IRS regulations are very specific: ``That rate is then rounded to the nearest two-tenths of one percent or 2.6 percent.``.
Unfortunately, that example is for annual rate. Would I also round to 0.2% for calculated subannual rates?
In any case, I don't know if similar rounding rules applies to family loans.
(*)
https://www.irs.gov/businesses/small-businesses-self-employed/section-7520-interest-rates
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Finally, it is unclear to me how and where to calculate and report taxable interest income for below-AFR family loans.
"Expert" webpages that I find (so far) only discuss interest-free family loans. So the imputed interest is based on the entire AFR.
But I assume the calculation is actually something like:
(interest at AFR) minus (interest at below-market rate)
The "expert" webpages indicate that such taxable interest income should be reported on "line 8a".
But persumably, that is not for the 2021 Form 1040. There is no line "8a" per se; and Schedule 1 line 8a is for "net operating loss", which is entered as a negative amount.
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Sorry for all the questions. Thanks for any pointers to IRS answers.
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