With interest rates increasing over the last couple of years, sometimes buying the rate down can be a great strategy. A buydown is a way for a lessee to obtain a lower interest rate and payments by having points paid up front at closing. Seller-paid buydowns are the most common type of lease buydown.
The IRS uses Form 8697 to figure the interest due or to be refunded under the look-back method of section 460(b)(2) on certain long-term contracts that are accounted for under either the percentage of completion method or the percentage of completion-capitalized cost method. Below is a brief synopsis of understanding the basis of the calculation and how to compute the interest in TaxInterest software.
Per diem interest is the interest charged on a loan on a daily basis. The finance charge is interest calculated since the last time a payment was made. Often, you have a loan payoff at a point in time and it doesn’t close and you need to determine the per diem interest for each day the loan doesn’t get paid off.
In 1984, the Tax Reform Act set provisions for applicable federal rates (AFRs). This is a minimum tax rate that must be charged on all loans, including personal/family loans. The IRS provides various prescribed rates for federal income tax purposes each month and TimeValue Software offers them on our website at Applicable Federal Rates | TimeValue Software.