Accounting Consultation

Free consultation

Our accounting firm offers a free initial consultation to small business owners in the Springfield area. Please call us at 217-544-2120 or complete this form and we will contact you shortly.

Contact Us

Send Us a File

Send your private, encrypted files directly to our CPA firm.

Send a File

Tax Center

Visit our Tax Center to sign up for tax due date emails, track your refund and more.

Learn More

Tracking Down Interest Deductions

« Back to Individual Tax

Is the interest you pay on borrowed funds tax deductible? As with many tax-related questions, the answer is, "It depends."

Different Types

Different categories of interest expenses have different deductibility rules.

Personal interest, such as interest paid by consumers on their personal credit cards, is generally not deductible.

Student loan interest of up to $2,500 is potentially deductible (requirements apply).

Qualified interest on home mortgages of up to $750,000. This applies to properties financed after December 15, 2017. Previously, the limit was $1 million. Interest paid on home equity loans and lines of credit are no longer tax deductible unless they are used to buy, build, or substantially improve the home that secures the loan.

Investment interest is deductible to the extent of "net investment income."

Trade or business interest is generally deductible in full.

Passive activity interest that is incurred in the course of business or income-producing activities in which you do not materially participate is generally deductible against passive activity income (but rules limit deductions for losses from passive activities).

Tracing

Determining whether interest is deductible may require tracing the loan proceeds to their ultimate use. For example, if you take out a loan secured by business property but then use the entire proceeds to purchase a car for your personal use, the interest on the loan is considered nondeductible personal interest, even though business property is the security for the loan. The rules for matching debt with expenses can get more complicated if you commingle loan proceeds with other, non-loan assets, such as a personal savings account.


Contact Our CPA Firm

2501 Chatham Road, Suite 120,
Springfield, IL 62704

Phone number: 217-544-2120
Email address: amurphy@central-illinois-cpa.com

Accounting Newsletter

We offer a free monthly newsletter featuring tax saving strategies, QuickBooks tips, ideas for growing your business and more.

 

Tax Tips

Five Ways to Prepare for Tax Filings

Organize records for tax return benefits Now that the page has turned on another calendar year, the tax return season is fast approaching.

• Read More