November 2026 AFRs Rise (Rev. Rul. 2026-21): What Parents Lending Money to Children for a Home or Business Should Do Now

Bottom line in one breath

On October 16, 2026, the IRS posted Rev. Rul. 2026-21 with the applicable federal rates (AFRs) for November 2026, and every term bucket went up: the short-term AFR is 4.67% (annual), the mid-term AFR is 5.08% and the long-term AFR is 5.52%, versus 4.25%, 4.61% and 5.22% for October 2026. If you are lending money to a child, parent or other relative — for a down payment, tuition or a new business — the AFR is the minimum interest rate that keeps a family loan from being treated in part as a gift and as imputed interest under IRC §7872. A term loan signed on or before October 31, 2026 locks in the October rate; one signed from November 1, 2026 uses the higher November rate.

News background

Each month the IRS publishes a revenue ruling with the AFRs for the following month under IRC §1274(d). The rate depends on the loan's term: short-term for loans of 3 years or less, mid-term for over 3 and up to 9 years, and long-term for over 9 years.

Rev. Rul. 2026-21 (posted to irs.gov on October 16, 2026) sets the November 2026 rates. The same ruling sets the §7520 rate — used to value annuities, life interests and remainder interests in estate planning such as GRATs and charitable remainder trusts — at 6.20%, up from 5.60% for October 2026 (Rev. Rul. 2026-19).

For family loans, IRC §7872 is the key rule. When a "gift loan" carries interest below the AFR, the tax law treats the forgone interest as if the lender gave it to the borrower and the borrower paid it back as interest. The IRS Gift Tax page says it plainly: if you make an interest-free or reduced-interest loan, you may be making a gift.

For demand loans (repayable whenever the lender asks), the AFR is the short-term rate for each period; the IRS also publishes a "blended annual rate" for loans outstanding all year, which is 3.82% for 2026 (Rev. Rul. 2026-12). For term loans, the AFR in effect on the day the loan is made, compounded semiannually, applies for the life of the loan. Sources: Rev. Rul. 2026-21, Rev. Rul. 2026-19, Rev. Rul. 2026-12, IRC §§7872 and 1274(d), IRS Gift Tax page.

Old rules vs. new rules

Short-term AFR (term of 3 years or less): October 2026 4.25% annual / 4.21% semiannual → November 2026 4.67% annual / 4.62% semiannual.

Mid-term AFR (over 3 up to 9 years): October 2026 4.61% / 4.56% → November 2026 5.08% / 5.02%.

Long-term AFR (over 9 years): October 2026 5.22% / 5.15% → November 2026 5.52% / 5.45%.

§7520 rate: October 2026 5.60% → November 2026 6.20%. Higher §7520 rates generally make GRATs less attractive and can make some charitable remainder trusts more attractive; model before you sign.

What did not change: the §7872 framework itself. Gift loans directly between individuals of $10,000 or less in total are generally excluded (but not if the money buys or carries income-producing assets). For gift loans of $100,000 or less in total, imputed interest for income tax is limited to the borrower's net investment income, and treated as zero if that income is $1,000 or less — unless a principal purpose of the interest arrangement is to reduce federal tax. A married couple is treated as one person.

Other 2026 numbers that still apply: the gift tax annual exclusion is $19,000 per recipient and the basic exclusion amount is $15,000,000 (Rev. Proc. 2025-32).

Are you affected? Self-check list

If you plan to lend more than $10,000 to a child or relative before year-end (for example, a home down payment), decide now whether to sign in October or November and document the loan in writing.

If you already lent family money interest-free or at a rate below the AFR in effect when the loan was made, the forgone interest may be a gift and may be interest income to you each year.

If the family loan is over $100,000, the net investment income limit does not apply, so imputed interest is figured on the full AFR.

If your child wants to deduct the interest as home mortgage interest, the loan generally must be secured by the home under a recorded mortgage or deed of trust (IRS Publication 936).

If the lender is a parent living in China (a nonresident alien), interest your child pays may be subject to U.S. withholding and Form 1042-S reporting, and a forgiven loan may become a foreign gift reportable on Form 3520 once gifts from that person exceed $100,000 in a year.

If you are setting up a GRAT, installment sale to a trust or charitable trust this year, check the November 2026 §7520 rate of 6.20% against your model.

Simplified example

Simplified illustration only. Actual results depend on the loan documents, your full return and IRS rules.

A parent lends an adult child $300,000 toward a home, repayable over 9 years (a mid-term loan), with interest paid every six months.

Signed on October 28, 2026: the minimum rate is the October 2026 mid-term AFR, 4.56% compounded semiannually — about $13,680 of interest a year.

Signed on November 5, 2026: the minimum rate is the November 2026 mid-term AFR, 5.02% compounded semiannually — about $15,060 a year, roughly $1,380 more each year for the life of the loan.

If instead the parent makes it an interest-free demand loan outstanding all of 2026: forgone interest at the 2026 blended annual rate of 3.82% is about $11,460. That amount is treated as a gift to the child (within the $19,000 annual exclusion, so it alone would not require Form 709) and as interest income to the parent, because the loan is over $100,000.

In every case, the parent reports interest received (or imputed) as income, and the child can deduct it as mortgage interest only if the loan is properly secured and the child itemizes.

Action plan and timeline

By October 31, 2026: if you are ready to sign a family term loan and the October rate matters to you, sign and fund it by this date and keep proof of the funding date.

From November 1, 2026: new term loans need at least the November 2026 AFR for their term. December 2026 rates are usually released in mid-November.

Paperwork: a signed promissory note (amount, rate, term, payment schedule), a payment history from bank records, and — for a home loan — a recorded mortgage or deed of trust if your child wants the interest deduction.

December 31, 2026: demand-loan forgone interest is treated as transferred on the last day of the year; also review each recipient's 2026 gifts against the $19,000 annual exclusion.

April 15, 2027: 2026 Forms 709 and 3520 (if required) are generally due with the 2026 return, with extensions available. Lenders report 2026 interest income; borrowers who itemize report mortgage interest not shown on Form 1098 on Schedule A, line 8b with the lender's name, SSN and address.

Cross-border loans: if a parent in China is the lender, plan the interest payments, withholding and treaty documentation (Form W-8BEN) before the first payment.

How YCL can help

Family loan setup: choose the right term bucket and AFR, and prepare a checklist for the promissory note, payment schedule and security documents to review with your attorney.

Gift and imputed interest calculations: figure forgone interest under §7872, track annual exclusion use, and prepare Form 709 when needed.

Home purchase coordination: confirm whether a family mortgage can qualify as deductible home mortgage interest and how to report it on Schedule A.

Cross-border families: review U.S. withholding (Form 1042 / 1042-S), U.S.–China treaty eligibility, Form 3520 for gifts from parents abroad, and FBAR/Form 8938 if accounts are involved.

Estate planning numbers: model GRATs, installment sales and charitable trusts with the current §7520 rate alongside your estate attorney.

YCL is a multistate CPA firm serving clients nationwide, in English and Chinese.

FAQ

Q: Do I have to charge my child interest on a family loan?

A: Not legally, but if the rate is below the AFR, IRC §7872 can treat the forgone interest as a gift to your child and as interest income to you. Small loans ($10,000 or less in total) and loans of $100,000 or less have special limits, described above.

Q: Will my existing family loan's rate go up because November AFRs are higher?

A: For a term loan, generally no — the AFR in effect when the loan was made applies for its term. For a demand loan, the short-term rate for each period applies, so imputed interest can rise when rates rise.

Q: Can my parents in China lend me money for a U.S. home?

A: Yes, but plan the paperwork. Interest you pay them may be subject to U.S. withholding (the U.S.–China treaty generally limits the rate on interest to 10% for a qualifying beneficial owner), and if they later forgive the loan, the forgiven amount may be a foreign gift you report on Form 3520 if gifts from them exceed $100,000 in a year.

Q: Which rate do I use for a 5-year loan signed in November 2026?

A: The mid-term AFR for November 2026: 5.08% annual, or 5.02% if interest compounds semiannually (Rev. Rul. 2026-21).

Book a consult

Book online: https://yclcpa.com/en/book

YCL Accounting & Consulting (YCL Tax, Accounting & Advisory)

Multistate CPA firm serving clients nationwide

Web: yclcpa.com ｜ Email: info@yclcpa.com

Phone: 919-802-8376 / 980-202-0666 ｜ WeChat: YCLUSA

Cary office: 1140 Kildaire Farm Rd. STE 208, Cary, NC 27511

Shanghai office: 2-516, Zhongye Xiangteng Plaza, Lane 31, Jiatong Road, Shanghai

Book a Free Consultation with co-founder Gloria (Chenchen) Liu, CPA.

Disclaimer

This article is general tax information only and is not tax, legal or investment advice for any person. It does not promise any tax result. It is based on Rev. Rul. 2026-21 (posted October 16, 2026), Rev. Rul. 2026-19, Rev. Rul. 2026-12, IRC §§7872 and 1274(d), Rev. Proc. 2025-32, IRS Publication 936, the Schedule A instructions and the U.S.–China income tax treaty; IRS guidance may change. Loan documents and security interests should be reviewed by a licensed attorney, and you should consult a licensed tax professional about your situation.