Is interest tax deductible?
It depends. Interest is usually tax deductible when the borrowed money is used to earn business or investment income. Personal interest is generally not deductible.
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On this page: Short answer · Who this applies to · When it’s deductible · When it’s not deductible · Example · Records · Specific lookups · FAQ
Short answer
Depends. Interest is tax deductible when the loan or credit is used for business or income-producing purposes. Interest on personal spending is usually not deductible.
The purpose of the borrowing—not the lender—determines deductibility.
Who this typically applies to
- Self-employed individuals and freelancers
- Business owners using loans or lines of credit
- Individuals using credit cards for business expenses
- Investors borrowing to earn taxable income
When it’s more likely deductible
- The borrowed money is used to earn business or investment income
- The interest relates to a business loan or line of credit
- The expense can be clearly traced to income-producing use
- You keep records showing how borrowed funds were used
When it’s not deductible (or risky)
- The interest relates to personal spending
- You can’t trace how the borrowed money was used
- The loan was used for tax-exempt or non-income purposes
- Business and personal borrowing are mixed without allocation
Example
A business owner uses a line of credit to purchase inventory and pay operating expenses. Because the borrowed funds are used to earn business income, the interest charged on the loan is generally deductible.
What records to keep
- Loan or credit agreements
- Interest statements from lenders
- Bank and credit card statements
- Documentation showing how borrowed funds were used
FAQ
Does the type of loan matter for interest deductibility?
No. What matters most is how the borrowed funds are used, not whether the loan is from a bank, credit card, or private lender.
Can I deduct interest on mixed-use loans?
Often yes, but only the portion related to business or income-producing use. Allocation records are essential.
Is interest on personal purchases deductible?
Generally no. Interest on personal expenses is usually not deductible.
Looking for other deductible expenses? See the full Expense Deductibility Guide.
Last reviewed: January 31, 2026