Imputed Interest

Imputed Interest means:
implied interest. In a mortgage that states an insufficient interest rate, tax law will impute a higher rate and a lower principal, which will increase taxes on the receipt of payments. Interest the taxpayer are considered to have earned – and therefore owe tax on – if the taxpayer make a below-market-rate loan. The imputed interest is based on the difference between the rate the federal government pays on new borrowings and the interest charged on the loan. The term is also used to refer to the interest income the taxpayer must report on taxable zero-coupon bonds. Although the bonds pay no interest until maturity, the taxpayer must report and pay tax on the interest as it accrues.Former IRC (check if this IRC provision is current here) §7872.

See also other Tax Terms and Definitions in U.S.A.

applicable federal rate; original issue discount.

U.S. and other Developed Countries International Tax Meaning

Implied interest. In a mortgage that states an insufficient interest rate, tax law will impute a higher rate and a lower principal, which will increase taxes on the receipt of payment.

Description and Definition of Imputed Interest

If you make a below market rate loan this is interest the IRS deems has been paid on the loan regardless of what you received. The imputed interest rate is the Applicable Federal Rate.

Resources

See Also

Further Reading

• Imputed Interest in the West's Tax Law Dictionary
• Imputed Interest in “A Dictionary of Taxation”