What Interest Rate Should a Family Home Sale Use?

CPA of Denver · Work directly with Philip M. Falco, CPA

There is no single website rate that answers every family seller-financing question. First identify which tax rules apply to the sale and financing, then evaluate the relevant dates and note terms. A tax benchmark also does not determine the rate the parties should negotiate for credit risk or other business reasons.

Separate Seller Financing From a Cash Loan

A note issued to buy property requires a review of the sale rules and their interaction with below-market loan provisions. Simply applying a family cash-loan rule can miss the questions the transaction actually raises.

What Are Applicable Federal Rates?

The IRS publishes AFRs monthly. The relevant category, compounding convention and date selection depend on the governing rule and the instrument. A stated 30-year payment schedule alone is not enough information to select the correct benchmark.

Review the Complete Note

  • Binding contract, closing and funding dates.
  • Payment frequency, amortization and any balloon.
  • Stated interest, compounding and when interest is payable.
  • Property use and any assumed or modified existing debt.
  • Relationship and any intended gift element.

Exceptions Need a Buyer-and-Seller Review

Publication 537 describes exceptions and different treatment for personal-use buyers and sellers. An exception affecting one party does not establish that both parties have no interest-related tax consequences. Below-market loan provisions can also change the applicable analysis.

Document the Conclusion

A useful written analysis identifies the governing provisions, dates, assumptions and note terms used. Retain the rate publication and explanation with the transaction file. If terms change before closing, confirm whether the analysis needs updating. A detailed rate determination and written memorandum are separately scoped.

Start with family seller-financing tax planning and the preparation checklist (PDF).

Related Family Real Estate Guides

Frequently Asked Questions

Should we simply use the current long-term AFR?

Not without reviewing the transaction. The governing rule, dates, maturity analysis, compounding and payment terms affect benchmark selection.

Does a personal-use exception remove the seller’s interest income?

Do not assume so. The IRS guidance distinguishes buyer and seller treatment; evaluate both sides separately.

Discuss the Transaction Before You Sign

Review the $350 CPA Consultation for a focused discussion, with up to one hour total for document review, preparation and the telephone call. Written recommendations, detailed calculations, return preparation and implementation require a separately agreed scope and fee. Send a service-fit inquiry if you need a quote for a written analysis; identify the parties seeking advice, intended closing date and requested deliverables. Do not send sensitive records by ordinary email.

Official References

Updated October 17, 2026 · General information. Tax treatment depends on the transaction, applicable year and accepted engagement.