How long can an intrafamily loan be?
Emma Jordan
Published Apr 10, 2026
You’ll generally want to use the Applicable Federal Rate (AFR) for intrafamily loans to ensure the IRS doesn’t view the funds as gifts. There are three tiers you’ll want to be aware of: a short-term loan of up to three years, a mid-term loan of three to nine years and a long-term loan of more than nine years.
Can family loans be interest only?
If the loan is structured as interest-only, the National Family Mortgage service can also help arrange for a portion of the loan to be forgiven annually (which is far less likely to trigger IRS scrutiny when interest is being paid, loan documents are recorded, and all the other formalities of the transaction are being …
An intra-family loan is a basic estate-planning technique which has a very low transaction cost. The lender can also structure the loan as a balloon note meaning that the borrower pays only interest during the term of the loan and only repays the principal at the end of the term.
What are the requirements for an intra family loan?
As with a traditional loan, an intra-family loan requires an adequate interest rate be charged for the use of the funds to avoid adverse income or gift tax consequences.
When is an intra family loan a bona fide loan?
If the intra-family loan interest rate is at or above the AFR when the loan is executed and all the other requirements of a bona fide loan are met, there should be no gift tax due or reduction in the lender’s lifetime estate tax exemption as a result of the loan.
Is it good to get an intra family mortgage?
As a result, intra-family mortgage loans may still be very appealing as borrowing rates, even when the rates are required to be “high enough” to meet the IRS’ AFR requirements.
Is the interest on an intra family loan taxable?
For income tax purposes, any interest received by the lender on an intra-family loan is considered interest income and is taxable at ordinary income tax rates, much like if the lender were to invest in a corporate bond or certificate of deposit and receive interest payments.
