Unstated Interest

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Unstated Interest

Unstated Interest is used.

when no interest or low interest is provided in an installment sale the agreement, the part of each payment that will be treated as interest, is referred to also as unstated or imputed interest. When the stated interest on a sales contract is less than the applicable federal rate, the unstated interest is the difference between the federal rate of interest and the interest specified in the sales contract. Unstated interest affects the selling price and the contract price and also the amount of gain on the sale. It reduces the selling price and increases the seller's interest income and the buyer's interest expense.

Description and Definition of Unstated Interest

Interest the IRS assumes has been received on a loan if the stated interest rate is below a minimum, called the applicable federal rate.


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