The IRS has released the Applicable Federal Rates (AFRs) for August 2026, providing various prescribed interest rates for federal income tax purposes. These rates are crucial for a range of financial transactions and tax calculations, including debt instruments, low-income housing credits, and the valuation of annuities. (Rev Rul 2026-13, 7/15/2026)
Understanding applicable federal rates
The AFRs are a set of interest rates published monthly by the IRS. They are used to prevent the manipulation of interest rates in certain transactions between related parties or in situations where the stated interest rate might not reflect economic reality. For instance, if a loan between related parties carries an interest rate below the AFR, the IRS may recharacterize a portion of the loan as interest for tax purposes.
Key August 2026 AFRs
Revenue Ruling 2026-12 details the following rates:
- Short-term AFR: 4.10% (annual compounding)
- Mid-term AFR: 4.35% (annual compounding)
- Long-term AFR: 4.92% (annual compounding)
These rates are determined as prescribed by IRC § 1274 and are used for debt instruments issued for property.
Rates for other tax provisions
The revenue ruling also provides rates relevant to other sections of the Internal Revenue Code, including:
Adjusted Applicable Federal Rates (adjusted AFRs)
The Adjusted AFRs are used for purposes of IRC § 1288(b). For August 2026, the Adjusted AFRs are:
- Short-term adjusted AFR is 3.10%,
- Mid-term adjusted AFR is 3.29%, and
- Long-term adjusted AFR is 3.72% (all annual compounding).
The rates under IRC § 382 are:
- The adjusted federal long-term rate for August 2026 is 3.72%.
- The long-term tax-exempt rate for ownership changes during the month is 3.77%.
Low-income housing credit rates
For buildings placed in service during August 2026, the appropriate percentages for determining the low-income housing credit under IRC § 42(b)(1) are:
- 70% present value low-income housing credit: 8.08%
- 30% present value low-income housing credit: 3.46%
Note. Under IRC § 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after August 30, 2008, can’t be less than 9%.
Rates for valuing annuities and other interests
The federal rate for determining the present value of an annuity, a life interest or a term of years, or a remainder or reversionary interest for purposes of IRC § 7520 is 5.20% for August 2026.
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