With personal loans, you don't use property such as your home as collateral. As a result, you typically have higher interest rates than loans backed by your home. The interest on a personal loan normally is not tax-deductible because the Internal Revenue Service treats such interest as personal interest. By moving or using your debt for non-personal purposes, however, even a personal loan can reap tax savings.
Unsecured to Secured
Consolidating personal loans into a home equity loan makes the interest deductible. You can write off the interest on loans up to $100,000 if you’re married filing jointly or $50,000 if filing separately. Home equity loan interest is an itemized deduction you take on Schedule A of Form 1040. Since a home equity loan converts unsecured debt to secured debt, you risk losing your home if you default.
Business or Investment Loans
On Schedule C of Form 1040, you may claim as an expense interest on loans used to run your business -- or at least your share of the liability for the loan. Interest you pay on loans to acquire investments, such as stocks and bonds, qualifies for itemized deductions on Schedule A of Form 1040. For both write-offs, allocate the interest based on the percentage of the loan used for business or investment and what is borrowed for personal use. For example, if you borrow $10,000, use $8,000 to buy stock and the rest for personal use, you deduct 80 percent of the interest as an investment expense.
- Internal Revenue Service: Publication 17: 23 -- Interest Expense
- Intuit Turbotax: Can I Write Off Credit Card Interest on MyTaxes?
- Texas Office of Consumer Credit Commissioner: Home Equity Loans in Texas -- Frequently Asked Questions
- GreenPath: Loan Types -- Secured vs. Unsecured Loans
- Internal Revenue Service: Publication 550 -- Investment Expenses
- Internal Revenue Service: Publication 535 -- Business Expenses
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