Is Personal Loan Interest Tax Deductible?

tax returnsYou can use a personal loan for all manner of things, but is personal loan interest tax deductible? Unfortunately, the answer is no – or at least usually no. But there are a few other types of loans and interest that are tax deductible.

When are Loans Tax Deductible?

Personal loans might not be tax deductible, but interest paid on other loans can be. For example, you may be able to claim back on mortgages, student loans, and business loans to reduce your taxable income for the year.

That said, you’ll also need to meet certain criteria to qualify for such deductions. For example, mortgage interest is only deductible if you took out the loan to fund the purchase of a primary residence. If you were issued a mortgage credit certificate through a government program for low-income housing, you may be able to claim a tax credit to reduce the tax you owe rather than your taxable income. When preparing documents for your tax return, be sure to have any of the above relevant information ready to reference.

Thinking about repaying your loan early? Remember that if you do, you’d lose the advantage of these tax deductions – just one of multiple factors to consider before making an early repayment.

Exceptions: Can Personal Loans Be Tax Deductible?

As mentioned above, you can sometimes make personal loan interest tax deductible if the loan wasn’t used to finance personal expenses.

One of the most common ways this happens is when you used a personal loan to finance business expenses. It may be possible to claim the interest paid on those expenses on your taxes, but you must be the person legally liable for the loan and able to itemize what interest is tied to legitimate business expenses.

If you used a personal loan to purchase a vehicle for business use, some or all of the interest may be tax-deductible — it depends how much you used the vehicle for business.

Find Out More About Interest on Personal Loan Income Tax Deduction

You’ll find Xpress Cash branches across Idaho, Wisconsin, and Michigan, where experienced team members can talk you through anything from the tax deductibility of loans to how taking a personal loan, affects your credit score. Feel free to contact us today for any further advice or assistance.