Wall Street Journal: Here is one surprise benefit of low interest rates: They can help reduce taxes.
Every month, the Internal Revenue Service resets the interest rates it allows for private loans and various estate-planning transactions carried out that month. The rates for October, issued Sept. 19, are the lowest on record.
The new short-term rate (less than three years) is 0.16%, down from 0.26% in September. The midterm rate (three to nine years) is 1.19%, down from 1.63%, while the long-term rate is 2.95%, down from 3.57%. A blended rate that applies to some estate-planning techniques is 1.4%, down from 2%.
The resets can be a boon to taxpayers looking to make lemonade out of the current low-rate environment. “The opportunity is tremendous for wealth transfer, especially with asset values low,” says Richard Behrendt, a former IRS estate-tax specialist now with Robert W. Baird & Co. in Milwaukee.
For example, low interest rates make intrafamily loans especially attractive. “It’s a wonderful time to lend to a child, say, to buy a house,” says Carol Harrington, an attorney at McDermott, Will & Emery in Chicago.