how do you compute imputed interest 
the calculation of imputed interest can vary depending on the specific circumstances of the loan and the applicable tax laws in general however the imputed interest on a loan is the difference between the actual interest rate charged by the lender and the market interest rate for a similar loan this difference is then multiplied by the loan principal to determine the amount of imputed interest for example if a borrower receives a loan of 10 000 at an interest rate of 3 and the market interest rate for a similar loan is actually 4 the imputed interest would be 100 1 x 10 000 the bottom lineimputed interest is a term used in tax law to describe a situation where a lender charges no interest on a loan but the irs considers the loan to have been made at an interest rate that is implied by market conditions in such cases the lender may be required to pay taxes on the difference between the actual and imputed interest rates there are several exemptions to these rules including loans made for the purpose of buying a primary residence or funding a business or investment the calculation of imputed interest is generally based on the difference between the actual interest rate and the market interest rate for a similar loan correction may 14 2023 an earlier version of this article incorrectly stated that it is the lender s responsibility to pay interest on a loan in most cases lenders are responsible for paying taxes on the imputed interest of a loan 