{"id":35903,"date":"2023-02-01T00:37:00","date_gmt":"2023-02-01T00:37:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=35903"},"modified":"2023-03-07T09:23:17","modified_gmt":"2023-03-07T09:23:17","slug":"personal-loan-interest-deduction","status":"publish","type":"post","link":"https:\/\/businessyield.com\/bs-personal-finance\/personal-loan-interest-deduction\/","title":{"rendered":"PERSONAL LOAN INTEREST DEDUCTION: Knowing Your Tax Benefits","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"\n
Do you know that the interest you pay on loans is not tax-deductible? In this post, we will focus on the details of interest deductions, especially on loans, which include: personal loan interest deduction, and personal loan interest deduction in income tax; the ones under income tax, where it is available; and also, if personal loans for home improvements are tax-deductible. Lastly, you will get to know from this post how much of a loan you can deduct and how to report interest income from a personal loan.<\/p>\n\n\n\n
A tax deduction is a provision where you can subtract from your taxable income to lower the amount of taxes you owe. Personal loans are loans you take out for personal purposes. The point of this post is to assist you to understand if the interest on personal loans can be deducted in any way. You now know that interest on personal loans and some other loans are not tax-deductible. However, you can claim the interest you pay when you file your taxes. Or, if you take out a loan to finance business expenses, interest on student loans that are put to use to pay for educational expenses is tax-deductible.<\/p>\n\n\n\n
Though personal loans are not tax-deductible, I want you to understand that other types of loans are. Interest on mortgages, student loans, and business loans can often be deducted from your annual taxes, effectively reducing your taxable income for the year. However, there are certain criteria that must be met to qualify for the above deductions. Mortgage interest is only deductible if the loan is used to fund the purchase of a primary residence. You may be able to claim a tax credit that directly reduces the amount of tax you owe rather than your taxable income. And then for your mortgage interest, if you were issued a mortgage credit certificate through a government program for low-income housing, then your interest can be deducted.<\/p>\n\n\n\n
Note that if you use a personal loan credit card to finance business expenses in addition to personal ones, you will not be able to claim the interest on those expenses on your taxes. This is because you must be the person legally responsible for the loan, and you must itemize what portion of the interest is attributable to legitimate business expenses. <\/p>\n\n\n\n
Similarly, when you purchase a vehicle using a personal loan that is for business use, some or all of the interest on the loan is tax-deductible. If you use the vehicle solely for business, then all of the interest is deductible. But when you use it for both personal and business purposes, then you deduct loan interest at the rate of the amount of time you use the vehicle for business. When you spend 60% of your driving time on business activities, for instance, then 60% of the annual interest is deductible.<\/p>\n\n\n\n
This also applies to the use of a personal loan to invest in a corporation, partnership, or limited liability corporation. The rules governing these deductions are tricky, so it is better to enlist the aid of a skillful tax professional to calculate what you can take off. As for interest on a student loan to be tax-deductible, the loan must be made by the individual, their spouse, or a dependent.<\/p>\n\n\n\n
Now you can choose the standard deduction as a single deduction at a fixed amount. Or, you can itemize the deductions on Schedule A of your income tax return. If the value of the itemized expenses is greater than the standard deduction for your filing status, then it makes sense to itemize them. Allowable deductions include mortgage interest, charitable gifts, unreimbursed medical expenses, and state and local taxes.<\/p>\n\n\n\n