Definition of Imputed interest:
Non-interest income taxed as interest income.
The IRS uses imputed interest to collect tax revenues on loans or securities that pay little or no interest. Imputed interest is important for discount bonds, such as zero-coupon bonds and other securities sold below face value and mature at par. The IRS uses an accretive method when calculating the imputed interest on Treasury bonds and has applicable federal rates that set a minimum interest rate in relation to imputed interest and original issue discount rules.
Imputed interest may apply to loans among family and friends. For example, a mother loans her son $50,000 with no interest charges. The applicable short-term federal rate is 2 percent, so the son should pay his mother $1,000 annually in interest. The IRS assumes the mother collects this amount from her son and lists it on her tax return as interest income even though she did not collect the funds.
How to use Imputed interest in a sentence?
- Imputed interest can also apply to loans from family and friends.
- Imputed interest is calculated according to the accretive method.
- Imputed interest is used for tax revenue on loans that pay little interest.
Meaning of Imputed interest & Imputed interest Definition