Is Personal Loan Interest Tax-Deductible? What You Need To Know
Written by
Sarah Silbert
Edited by
Melanie Grafil
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In most cases, personal loan interest isn’t tax-deductible, unless the loan is used for specific purposes such as for business or investment expenses.
When Can You Deduct Personal Loan Interest?
If you’ve taken out a personal loan, you’re likely wondering if the interest you pay to borrow money is tax-deductible so that you can maximize your tax deductions and potentially lower your tax bill.
Generally, no — you can’t deduct personal loan interest but there may be some exceptions.
Interest on a Personal Loan
How does personal loan interest work, anyway? When you apply for a personal loan, the lender will:
- Review your financial details, including your income and credit score.
- The lender will use these criteria to evaluate your credit risk, and will offer you an interest rate and loan payoff term in line with the strength of your application.
- The lower your credit score, the higher the interest rate you’ll generally pay, as you pose more of a risk to the lender.
Personal Expenses
If you use a personal loan for personal expenses like travel, wedding costs or home renovations, interest is not tax-deductible.
Using a personal loan for emergency expenses or everyday spending won’t qualify for tax-deductible interest, either.
Debt consolidation loans are also ineligible, unless the debt is deductible.
Keep in mind that you’ll need to itemize your deductions if you plan to deduct personal loan interest. It’s only worth itemizing deductions if your itemized expenses surpass the standard deduction, which is a flat amount based on your filing status that changes each filing year.
When Expenses Qualify for Deductions
If you use your personal loan for business expenses, you can to deduct the interest paid, so there is one exception.
Additionally, if you use funds from a personal loan for qualified investments, such as buying stocks that generate income, or qualified student loan expenses, you may be able to deduct interest payments.
Of course, you’ll need to follow the IRS’ specific guidelines when it comes to which investment and student loans are tax-deductible.
How To Tell If Your Personal Loan Qualifies
The easiest way to determine whether your personal loan qualifies for a tax deduction is to identify how the loan money was used. In general, using a loan for personal, nonbusiness reasons means you won’t be able to deduct your interest payments.
Beyond the exceptions mentioned above, you should review IRS rules for tax deductions and keep clear documentation on your loan. Consider working with a tax advisor to get the best advice for your situation.
Alternatives That May Offer Tax Benefits
You’ll want to weigh the pros and cons of personal loans against other types of loans before deciding what’s best for you.
Remember that you generally won’t be able to deduct your interest payments from your taxes. Depending on why you’re borrowing money and the terms of your loan, a personal loan may still be the best option, but consider these alternatives as well.
Home Equity Loans or HELOCs
While using a personal loan to fund home renovations or repairs won’t qualify for a tax deduction, using a home equity loan or HELOC for these expenses can qualify.
Unlike personal loans, home equity loans and home equity lines of credit (HELOCs) are secured, with your home being used as collateral if you fail to repay the money you borrow. The IRS has certain limitations on how much interest is deductible in these situations.
Student Loans
You can deduct interest paid on some student loans on your taxes.
There are also IRS limits on how much you can deduct each year.
You’ll need to confirm you have a qualified student loan, meaning a loan you took out solely to pay for higher education expenses for either you, your spouse or a dependent.
Business Loans
As long as you use a business loan for legitimate business expenses, rather than personal expenses, you should be able to deduct all interest payments.
Business loans are generally harder to get than personal loans, because they often require a business credit score and some established financial history for your business.
You shouldn’t muddy the waters by using business loans for nonbusiness expenses, though. If you can’t qualify for a business loan, using a personal loan for business expenses is allowed.
Example Scenarios: Deductible vs. Not Deductible
Since the way you use a personal loan will determine whether or not you can deduct your interest payments, here’s a handy chart that includes some common scenarios:
| Scenario | Tax Deductible? | Why |
|---|---|---|
| Loan used for a vacation | ❌ No | Personal expense |
| Loan used to buy stocks | ✅ Possibly | May qualify as investment interest |
| Loan used for home remodel | ❌ No | Only tax-deductible if structured as a secured mortgage loan |
| Loan used for freelance business gear | ✅ Yes | Business-related expense |
| Loan used for higher education expenses | ✅ Possibly | Qualified student loans are tax-deductible |
What To Do If You’re Not Sure
If you’re unclear whether your personal loan interest is tax deductible, you should talk to a Certified Public Accountant (CPA) or tax advisor. Make sure you share all documentation related to your loan and how you used the funds you borrowed.
You can also review IRS guidance. For business expenses, refer to IRS Pub 535, which was last updated in 2022. If you used a personal loan for investments, refer to Pub 550 to determine if your situation is eligible for deductions.
FAQ: Personal Loan Interest and Taxes
Not sure if personal loan interest is tax-deductible? These FAQs break it down further.- Can I deduct personal loan interest on my taxes?
- You may be able to deduct personal loan interest from your taxes, but only if the loan was used for qualifying expenses, such as for business purposes or qualifying investment expenses.
- What if I used the loan for my business?
- If you used the loan for your business, you may be able to deduct your interest payments.
- Is credit card interest tax-deductible too?
- No, credit card interest is generally not tax deductible, especially for personal expenses.
- What about a loan I used for college? Is that tax-deductible?
- If you have a qualified student loan, you may be able to deduct your interest payments.
- How can I prove how I used the loan money?
- You can prove how you used the loan money by gathering relevant documents, such as bank statements and credit card statements that show where the loan funds went.
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- IRS. 2024. "Topic No. 505, Interest Expense."
- IRS. 2025. "Topic No. 501, Should I Itemize?"
- IRS. 2024. "Is Interest Paid on a Home Equity Loan or HELOC Deductible?"
- IRS. 2025. " Topic No. 456, Student Loan Interest Deduction."
- IRS. "Business Expenses (IRS Pub 535)."
- IRS. 2025. "About Publication 550, Investment Income and Expenses."
