Applicable Federal Rate (AFR) October 2026: Tables and How to Use Them
The applicable federal rate (AFR) is the minimum interest rate the IRS publishes each month under IRC §1274(d). It comes in three terms: short-term (3 years or less), mid-term (over 3 and up to 9 years) and long-term (over 9 years). If a seller-financed note or a family loan charges less than the AFR for its term, the tax law treats part of the payments, or the missing interest, as interest anyway.
For October 2026, Rev. Rul. 2026-19 sets the annual AFRs at 4.25% short-term, 4.61% mid-term and 5.22% long-term. The rates change every month, so always pull the ruling for the month that matters to you from the IRS AFR index.
Go deeper: seller note interest, AFR and imputed interest, on Big Sale Tax.
If your note is part of a property or business sale, the installment sale calculator tests your rate against the AFR and shows the tax on the sale and the interest year by year.
November 2026 AFRs are out: how they compare with October
The IRS published the November 2026 rates in Rev. Rul. 2026-21 (Table 1, annual compounding). They apply to sales and loans in November. October's rates (Rev. Rul. 2026-19) stay in the tables further down, and the calculators on this site still test notes against October until the November data is loaded.
| Term (annual compounding) | September 2026 (Rev. Rul. 2026-17) | October 2026 (Rev. Rul. 2026-19) | November 2026 (Rev. Rul. 2026-21) |
|---|---|---|---|
| Short-term AFR | 4.18% | 4.25% | 4.67% |
| Mid-term AFR | 4.49% | 4.61% | 5.08% |
| Long-term AFR | 5.12% | 5.22% | 5.52% |
Source: IRS revenue rulings 2026-17, 2026-19 and 2026-21, Table 1, checked October 18, 2026. For a sale, the test rate is the lowest AFR of the three months ending with the month of the binding contract (IRC 1274(d)(2)). So a contract signed in November is tested against the lowest of September, October and November, which for all three terms is September's rate in the table above.
What the AFR is (and what it is not)
The AFR is a tax benchmark. It is based on the average market yield on outstanding U.S. government debt of similar maturities (§1274(d)(1)(C)), and the IRS publishes it as a revenue ruling shortly before the month begins. It is used by dozens of Code sections; Rev. Rul. 2026-19 lists §§42, 280G, 382, 467, 468, 482, 483, 1274, 1288, 7520, 7702 and 7872.
It is not a market rate. No bank will lend you money at the AFR, and a buyer who could borrow at the AFR from a bank would not need seller financing. For a seller, the AFR is a floor for tax purposes. The rate you actually negotiate on a note depends on the buyer, the down payment, the collateral and the term, which we cover in how to set a seller financing interest rate.
Current AFR table and the 3-month lowest rates
The newest table in our data file is November 2026 (Rev. Rul. 2026-21), the base AFR rows of Table 1. The four columns are the same rate expressed for different compounding periods.
| Term | Annual | Semiannual | Quarterly | Monthly |
|---|---|---|---|---|
| Short-term (3 years or less) | 4.67% | 4.62% | 4.59% | 4.58% |
| Mid-term (over 3, up to 9 years) | 5.08% | 5.02% | 4.99% | 4.97% |
| Long-term (over 9 years) | 5.52% | 5.45% | 5.41% | 5.39% |
The 3-month rule for sales. For a seller-financed note, the test rate is the lowest AFR of the three months ending with the month the binding contract is signed (IRC 1274(d)(2)). The lowest rate for a contract signed in each month, annual compounding:
| Contract signed in | Short-term | Mid-term | Long-term | Rulings |
|---|---|---|---|---|
| November 2026 | 4.18% | 4.49% | 5.12% | Rev. Rul. 2026-17, Rev. Rul. 2026-19, Rev. Rul. 2026-21 |
| October 2026 | 4.10% | 4.35% | 4.92% | Rev. Rul. 2026-13, Rev. Rul. 2026-17, Rev. Rul. 2026-19 |
| September 2026 | 4.00% | 4.35% | 4.92% | Rev. Rul. 2026-12, Rev. Rul. 2026-13, Rev. Rul. 2026-17 |
| August 2026 | 3.85% | 4.13% | 4.87% | Rev. Rul. 2026-11, Rev. Rul. 2026-12, Rev. Rul. 2026-13 |
| July 2026 | 3.82% | 4.08% | 4.83% | Rev. Rul. 2026-9, Rev. Rul. 2026-11, Rev. Rul. 2026-12 |
| June 2026 | 3.59% | 3.82% | 4.62% | Rev. Rul. 2026-7, Rev. Rul. 2026-9, Rev. Rul. 2026-11 |
| May 2026 | 3.59% | 3.82% | 4.62% | Rev. Rul. 2026-6, Rev. Rul. 2026-7, Rev. Rul. 2026-9 |
| April 2026 | 3.56% | 3.82% | 4.62% | Rev. Rul. 2026-3, Rev. Rul. 2026-6, Rev. Rul. 2026-7 |
| March 2026 | 3.56% | 3.81% | 4.63% | Rev. Rul. 2026-2, Rev. Rul. 2026-3, Rev. Rul. 2026-6 |
| Month | Short-term | Mid-term | Long-term | Ruling |
|---|---|---|---|---|
| November 2026 | 4.67% | 5.08% | 5.52% | Rev. Rul. 2026-21 |
| October 2026 | 4.25% | 4.61% | 5.22% | Rev. Rul. 2026-19 |
| September 2026 | 4.18% | 4.49% | 5.12% | Rev. Rul. 2026-17 |
| August 2026 | 4.10% | 4.35% | 4.92% | Rev. Rul. 2026-13 |
| July 2026 | 4.00% | 4.35% | 4.98% | Rev. Rul. 2026-12 |
| June 2026 | 3.85% | 4.13% | 4.87% | Rev. Rul. 2026-11 |
| May 2026 | 3.82% | 4.08% | 4.83% | Rev. Rul. 2026-9 |
| April 2026 | 3.59% | 3.82% | 4.62% | Rev. Rul. 2026-7 |
| March 2026 | 3.59% | 3.93% | 4.72% | Rev. Rul. 2026-6 |
| February 2026 | 3.56% | 3.86% | 4.70% | Rev. Rul. 2026-3 |
| January 2026 | 3.63% | 3.81% | 4.63% | Rev. Rul. 2026-2 |
Annual compounding. Source: the monthly revenue rulings at the IRS AFR index. The calculators on this site test your note against the same data.
The October 2026 ruling also sets the §7520 rate at 5.60% (Table 5), and Rev. Rul. 2026-12 set the 2026 blended annual rate at 3.82% (Table 6).
These figures go stale quickly: we update this table monthly, but always confirm the ruling for your contract month. The seller financing calculator and the owner financing calculator test your note rate against it automatically, including the 3-month rule and the weighted average maturity.
How to read the AFR table
Each monthly ruling has five or six tables. A seller or family lender usually needs only two of them.
Table 1: the AFRs. Three blocks (short, mid, long), four compounding columns, and extra rows at 110%, 120%, 130% (and for mid-term, 150% and 175%) of the base rate.
- Pick the row by term. The base "AFR" row is the one for installment notes and most family loans. The multiples serve other Code sections. For example, §1274(e) uses 110% of the AFR for certain sale-leasebacks, and the §7520 rate is 120% of the mid-term rate, rounded to the nearest 0.2% (§7520(a)(2)).
- Pick the column by how your note compounds. A note that pays interest monthly is compared to the monthly column, a note that pays annually to the annual column. The IRS test for a seller-financed note is stated with semiannual compounding (§1274(b)(2)(B)), which is why most advisors quote the semiannual figure. The four columns are mathematically equivalent, so the choice only matters if you are close to the line.
Table 5: the §7520 rate. Used to value annuities, life estates, remainders and similar split interests: charitable remainder trusts, GRATs, private annuities and the like.
Blended annual rate. Published once a year (in the July ruling). It is used for demand loans that are outstanding for the whole calendar year under §7872.
Short-term, mid-term or long-term: which applies?
The term decides the row (§1274(d)(1)):
| Term of the note or loan | AFR to use |
|---|---|
| 3 years or less | Short-term |
| Over 3 years, up to 9 years | Mid-term |
| Over 9 years | Long-term |
For an installment sale note, "term" means the note's weighted average maturity, not its final due date (IRS Pub. 537, citing Reg. §1.1273-1(e)(3)). A 15-year amortizing note pays principal every month, so its weighted average maturity is much shorter than 15 years and it may fall in the mid-term bucket. A note with interest only and a single balloon at year 12 has a weighted average maturity close to 12 years and uses the long-term rate.
For a family term loan, use the rate for the loan's stated term in effect on the day the loan is made (§7872(f)(2)(A)).
Which month's AFR?
This is where sellers and lenders leave money on the table.
- Installment sales. The test rate is the lowest AFR in effect during the 3-calendar-month period ending with the first month in which there is a binding written contract. Pub. 537 adds that you may instead use the 3-month period ending with the month of the sale, if lower. In a rising-rate year, signing the contract early locks in a lower floor.
- Term loans to family. The AFR in effect when the loan is made, compounded semiannually, and it stays fixed for the life of the loan (§7872(f)(2)(A)).
- Demand loans. The short-term AFR for each period the loan is outstanding, so the floor floats (§7872(f)(2)(B)). For a demand loan outstanding all year, the blended annual rate (3.82% for 2026) is a shortcut.
Where the AFR shows up for sellers and families
| Situation | What the AFR does | Code section | Read more |
|---|---|---|---|
| Seller-financed sale of real estate or a business | Test rate for adequate stated interest; below it, part of principal becomes interest | §§483, 1274 | Imputed interest |
| Land sold to a family member | Test rate capped at 6% compounded semiannually, up to $500,000 of sales per year between the same individuals | §483(e) | Related-party installment sales |
| Loan of cash to a child or parent | Below-AFR interest is treated as a gift plus interest income to you | §7872 | This article, below |
| Sale of assets to a grantor trust | Note usually set at the AFR for its term | §§1274, 7872 | Intentionally defective grantor trust |
| Private annuity, charitable remainder trust, GRAT | Valuation uses the §7520 rate | §7520 | Private annuities, CRTs |
For large seller-financed sales, the test rate cannot exceed 9%, compounded semiannually, for seller financing up to an inflation-adjusted amount (§1274A). That amount is $7,462,600 for 2026 (Rev. Proc. 2025-32; $7,296,700 for 2025). It only matters when the AFR itself is above 9%.
Family loans and the AFR (IRC 7872)
Intrafamily loans are the second most common reason people search for AFR rates. The rules are in §7872, and they differ from the installment sale rules.
What happens if you charge less than the AFR. For a gift loan, the "forgone interest" (the AFR interest minus the interest actually charged) is treated as if you transferred it to the borrower as a gift and the borrower paid it back to you as interest (§7872(a)(1)). You report interest income you never received, and you may have a gift to report.
Two important exceptions for loans between individuals:
- $10,000 de minimis. §7872 does not apply on any day the total outstanding loans between the two individuals are $10,000 or less, unless the loan is used to buy or carry income-producing assets (§7872(c)(2)).
- $100,000 net investment income cap. If the total loans between the two individuals are $100,000 or less, the interest you are deemed to receive for income tax purposes cannot exceed the borrower's net investment income for the year, and if that is $1,000 or less it is treated as zero (§7872(d)(1)). This does not apply if tax avoidance is a principal purpose.
The practical answer. Most families avoid all of this by charging at least the AFR for the loan's term, putting it in a signed note, and actually collecting the payments. At October 2026 rates, a 10-year family loan at the long-term AFR would carry about 5.22% (annual compounding), well below most bank rates.
Simple example: locking the AFR on a seller-financed note
Simple example. Assumptions: a seller signs a binding contract in October 2026 to sell a rental for $900,000 with $180,000 down and a $720,000 note. The note pays interest monthly and amortizes over 20 years with a balloon in year 7, so its weighted average maturity falls between 3 and 9 years.
- Term bucket: mid-term.
- Compounding: monthly payments, so compare to the monthly column (October 2026 alone: 4.52%).
- Window: the test rate is the lowest mid-term monthly AFR in August (4.26%), September (4.40%) and October 2026 (4.52%), so 4.26% (or the 3 months ending with the closing month, if lower). In a rising-rate year the older month wins.
- Any stated rate at or above 4.26% passes the test. Charging, say, 7% leaves plenty of room, and the rate you negotiate above the floor is a business decision.
If the note instead charged 3%, part of every principal payment would be recharacterized as interest, lowering the capital gain and raising ordinary income. The owner financing calculator runs this test on your own schedule, including the weighted average maturity, and estimates how much principal would be recharacterized if the rate falls short.
Bottom line
The applicable federal rate is the IRS's monthly minimum rate, split into short, mid and long terms. For a seller-financed note, charge at least the AFR for the note's weighted average maturity, using the lowest rate in the 3-month window around your contract. For a family loan, charge at least the AFR for the loan's term on the day you make it, or understand the §7872 consequences. Always pull the current ruling from irs.gov instead of trusting a rate quoted anywhere else, including here.
For how the note itself should be written, see seller financing note terms, and for a full payment schedule, how seller financing works.
Questions to ask your CPA
- What is the weighted average maturity of my note, and does it fall in the short, mid or long-term bucket?
- Which month's AFR can we use, given the contract date and the closing date?
- Does §483 or §1274 apply to my sale, and does the 9% cap or the 6% related-party land cap matter?
- For a family loan, is it a term loan or a demand loan, and do the $10,000 or $100,000 exceptions apply?
- If we forgive payments later, how are the gift and income tax consequences handled?
Primary sources
- IRS Rev. Rul. 2026-21, November 2026 rates (PDF)
- IRS Rev. Rul. 2026-19, October 2026 rates (PDF)
- IRS Rev. Rul. 2026-17, September 2026 rates (PDF)
- IRS Applicable Federal Rates (monthly revenue rulings)
- IRC section 1274 (Cornell LII)
- IRC section 483 (Cornell LII)
- IRC section 7872 (Cornell LII)
- IRS Publication 537, Installment Sales
Authority pages checked October 18, 2026.
Run your own numbers. Compare a cash sale, seller financing and a structured installment sale side by side, free.
Educational only, not tax, legal or investment advice. Examples are illustrative. Have your CPA or tax attorney review your facts before you act. Hans Goldstein is an Enrolled Agent, admitted to practice before the Internal Revenue Service, and a licensed insurance agent (CA Insurance License #4273294). He is not a CPA or attorney. He is paid a commission only if a structured installment sale is funded; seller financing pays him nothing. Disclosures.