By the way, the gift limit has been increased to $13K/yr

Thanks. I wasn't aware of that. I don't see that information

in the online IRS Pub 950, which is still the 2008 version.

The chart is fresh (good thing) but the wording here is vague (bad);

http://www.irs.gov/irb/2009-02_IRB/ar08.html
The rates I'd suggest using are in the first chart, and are .81 for

short term, 2.06 mid-term, and 3.57 for a long term loan.

Thanks for the pointer. I have some follow-up questions, if I may;

mostly just curiosity.

1. Is this (i.e. how to determine imputed interest rates for interest-

free

loans) discussed in any IRS Pub or other "normal" public document?

I'm just wondering how a "mere mortal" like myself is expected to

learn this information.

2. The AFR tables show essentially the same interest rate for annual,

monthly, et al for short-term loans. Are those all "annual

rates"?

For example, for short-term monthly compounding, the Dec 2008

rate is 1.36%. I assume that does not mean 1.36% per month

(17.60% APR). Right?

Even so, is the "monthly" rate of 1.36% a simply interest rate, or

is it an APR? That is, is the actual monthly rate 1.36%/12, or is

it

(1+1.36%)^(1/12)-1 (RATE(12,0,-1,1+1.36%) in Excel-speak)?

3. Finally, my __real__ question: what amount is actually considered

the gift amount?

Consider this example: a 25-month of $100,000, to be paid

back interest-free in equal payments of $4000 each. The loan

origination date is in Dec 2008.

According to

http://www.pmstax.com/afr (see below), we should

use the short-term AFRs. The annual rate is 1.36%, if my

assumption in #2 above is correct.

(Note: The following figures assume 1.36% in the annual

interest rate, not the APR.

(Also, I assume that it is correct to use the AFR as of the loan

origination date as a fixed interest rate. Right?)

For the equivalent amortized loan with no balloon payment,

the monthly payment would be about $4036, and the interest

paid each year would be about $1064, $411, $5 (= $1480 total).

On the other hand, the difference in total payment each year

between the amortized loan and interest-free loan would be

$720, $720, and $40 (= $1480 total).

So in the 1st year, would the gift be $1064, or would it be $720?

(For anyone else attempting to answer this - I googled on this topic,

and searched through the IRS site. I found many references to

"Applicable Federal Rate (AFR) and searching on that led me to the IRS

link above.)

That's great, if you know what to look for in the first place. I

didn't. But

once you mentioned it, it occurred to me to google "imputed interest

rate"

(without quotes). One search result points to

http://www.pmstax.com/afr,

which points to similar information.

Thanks again for the pointers and information.