On March 18, 2019, the IRS released the AFRs for April. The Section 7520 rate is 3.0%, down from 3.2% in February and March, and even lower than the 3.4% rate in January. The annual short-term, midterm and long-term rates are 2.52%, 2.55% and 2.89%. The Section 382 adjusted long-term rate is 2.19% and the long-term tax-exempt rate is 2.20%. For low income housing, the 70% present value rate is 7.63% and the 30% present value rate is 3.27%.
Rates have been falling, as indicated above, since the first of the year. In November and December 2018, the 7520 rate had peaked at 3.6%. Now it’s going down. The AFRs for May should be out in about a week to 10 days. Will they continue to fall? Last summer and fall, commentators were talking about a rising interest rate environment – how no interest rate loans to children might result in high imputed interest rates, implying that family loans should be made and interest rates locked in – that rising rates would have an impact on the value of annuities and income interest for gift tax purposes (causing values to drop). Consider the GRAT or grantor retained annuity trust, which always works better when interest rates are very low (as long as actual rates of return are better), and is less efficient when rates are high. On the flipside, qualified personal residence trusts or QPRTs work better in high interest rate environments. If rates are falling, that may signal that it’s a prime time to do GRATs.