You're allowed to take a tax deduction for some types of interest payments. Can I write off credit card interest on my taxes?
Key Takeaways
- Credit card interest is not deductible on income taxes.
- The personal interest deduction was eliminated in the Tax Reform Act of 1986.
- Interest payments on home loans, student loans, and investment property may be tax-deductible.
- Personal expenses cannot be deducted as business expenses.
Interest deductions
You're allowed to take a tax deduction for some types of interest payments, but unfortunately, credit card interest is not among them. The tax code classifies the interest you pay on credit cards as "personal interest," a category that hasn't been deductible since the 1980s.
However, if you own a home, there is a way to convert non-deductible personal interest into a tax-deductible expense.
History of the personal interest deduction
Credit card interest and other forms of personal interest were deductible on income taxes some years ago, but Congress eliminated those deductions in the Tax Reform Act of 1986.
According to the Treasury Department, the personal interest deduction was seen as encouraging Americans to spend money rather than save it; in reality, it also reduced tax revenues. That's because money that people put in savings earned them interest, which was taxable income, but if they ran up credit card debt, they could deduct the interest from their income, which lowered their tax liability.
TurboTax Tip:
Business interest, including credit card interest, may be deductible if it is related to a trade or business activity.
Tax-deductible interest payments
According to the IRS, only a few categories of interest payments are tax-deductible:
- Interest on home loans (including mortgages and home equity loans)
- Interest on outstanding student loans
- Interest on money borrowed to purchase investment property
- Interest as a business expense
All other interest is considered personal interest, which includes interest charged on credit cards, auto loans, unpaid utility bills and late payment or underpayment of federal, state and local income taxes.
Credit card interest as business expense
Credit card interest is never deductible for individuals, but it's a different story when a business is involved.
"Business interest," meaning interest paid on any loan taken out for business purposes, is considered a legitimate business expense, and that includes interest on credit cards. However, the debt must be related to a trade or business activity. You can't use your company credit card for personal expenses and then deduct the interest.
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FAQs
Key takeaways. Credit card interest is not tax-deductible for personal expenses. The government stopped allowing a tax deduction for credit card interest in the 1980s. Interest on student loans, mortgages, home equity loans, and business expenses are still tax-deductible.
Can credit card interest be written off on taxes? ›
Credit card interest is not deductible on income taxes. The personal interest deduction was eliminated in the Tax Reform Act of 1986. Interest payments on home loans, student loans, and investment property may be tax-deductible. Personal expenses cannot be deducted as business expenses.
How much interest can I write off on my taxes? ›
You can deduct the mortgage interest you paid during the tax year on the first $750,000 of your mortgage debt for your primary home or a second home. If you are married filing separately, the limit drops to $375,000.
Can credit card payments be written off on taxes? ›
Key Takeaways
Credit card fees are not deductible for individuals and are deductible for businesses. Businesses can deduct all credit card fees as well as finance charges. Businesses are eligible to deduct credit or debit card processing fees associated with paying taxes, but individuals are not.
Can you write off debt interest on taxes? ›
Debt Expenses That Can Be Deducted
Interest paid on mortgages, student loans, and business loans often can be deducted on your annual taxes, effectively reducing your taxable income for the year. You shouldn't need a tax break to afford a personal loan.
When did credit card interest stop being tax deductions? ›
Interest on a credit card used for personal purchases is never tax-deductible, and has not been since the passage of the Tax Reform Act 1986.
What interest is not tax-deductible? ›
Types of interest not deductible include personal interest, such as: Interest paid on a loan to purchase a car for personal use. Credit card and installment interest incurred for personal expenses.
What is the maximum interest write off? ›
You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebt- edness.
Is car loan interest tax deductible? ›
No, that interest is not tax-deductible. If you used the vehicle for business purposes, you may need it, so keep it with your tax records, but you do not need to include it with your personal tax return. Still have questions? Use your Intuit Account to sign in to TurboTax.
What can you itemize on taxes? ›
If you itemize, you can deduct these expenses:
- Bad debts.
- Canceled debt on home.
- Capital losses.
- Donations to charity.
- Gains from sale of your home.
- Gambling losses.
- Home mortgage interest.
- Income, sales, real estate and personal property taxes.
Car loan payments and lease payments are not fully tax-deductible. The general rule of thumb for deducting vehicle expenses is, you can write off the portion of your expenses used for business. So "no" you cannot deduct the entire monthly car payment from your taxes as a business expense.
Is car insurance tax-deductible? ›
Car insurance is tax deductible as part of a list of expenses for certain individuals. Generally, people who are self-employed can deduct car insurance, but there are a few other specific individuals for whom car insurance is tax deductible, such as for armed forces reservists or qualified performing artists.
How do you report credit card payments on taxes? ›
Form 1099-K is a report of payments you got for goods or services during the year from:
- Credit, debit or stored value cards such as gift cards (payment cards)
- Payment apps or online marketplaces, also called third party settlement organizations or TPSOs.
Key takeaways. Credit card interest is not tax-deductible for personal expenses. The government stopped allowing a tax deduction for credit card interest in the 1980s. Interest on student loans, mortgages, home equity loans, and business expenses are still tax-deductible.
Does credit card debt affect your tax return? ›
Credit card debt will not prevent you from receiving your tax refund, but it can affect how much of a refund you receive if you had a debt settlement. If you think you may owe taxes due to a debt settlement, start planning now so that you can save for what you will owe.
How much interest expense can you deduct? ›
Before the TCJA, the mortgage interest deduction limit was on loans up to $1 million. Now, the loan limit is $750,000. For the 2024 tax year, married couples filing jointly, single filers and heads of households can deduct up to $750,000. Married taxpayers filing separately can deduct up to $375,000 each.
Can you write off interest and penalties on taxes? ›
Interest and/or penalties paid to the IRS are not deductible on your tax return.
Can I claim back interest on credit cards? ›
Interest charges are entirely fair and can't be refunded unless something very unusual has occurred, but the other two charges are more murky. Most credit card companies will charge you a fine for missing a payment or going over your card limit.
Can you use credit card statements for tax write offs? ›
Bank and credit card statements can provide some documentation for tax credits and deductions, but they're usually not sufficient on their own. These statements don't show all the details that the IRS requires: Payee. Amount paid.
Can I deduct personal loan interest on taxes? ›
Is interest on a personal loan tax deductible? In most cases, you cannot get a tax deductible interest on personal loans. You may not deduct interest expenses from an unsecured personal loan unless the loan is for business expenses, qualified education expenses, or eligible taxable investments.
