Is the Interest I Paid on a Personal Loan Deductible?

by Christopher Raines
Deduct the interest on a loan for a home office computer.

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.

About the Author

Christopher Raines enjoys sharing his knowledge of business, financial matters and the law. He earned his business administration and law degrees from the University of North Carolina at Chapel Hill. As a lawyer since August 1996, Raines has handled cases involving business, consumer and other areas of the law.

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