Imputed Interest Rate

imputed interest rate

A minimum market rate of interest assumed by the government for tax purposes regardless of the actual rate charged on a loan. The imputing of interest was included as part of the 1984 tax act in order to stop tax avoidance by people making loans at artificially low interest rates.

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Imputed Interest Rate

The minimum interest rate that the government assumes is paid on a loan, even if the actual interest rate is lower. The U.S. government places an imputed interest rate on some loans to reduce tax avoidance by some organizations that make loans well below market interest rates. The IRS also applies imputed interest on some bonds so that tax is paid every year on the interest, even if the bondholder does not receive coupon payments until maturity.