Is credit card interest tax deductible? This is a very important question to ask when it comes to calculating your tax. In the past, credit card interest tax was a deductible expense. It didn’t matter what you’d purchased with your credit card, all the interest you paid could be deducted on your tax return.
However, the past Tax Reform Act has witnessed a lot of upgrades and that includes, no deduction for your card interest tax. But if you’re using a business credit card or using your card for business expenses, there are some exceptions.
No Deduction For Personal Credit Card Interests
You cannot deduct the interest you pay to the credit card companies for everyday credit card purchases. You can’t even deduct credit card interest if you used the credit card for a purchase whose interest would be deductible if you used another debt instrument. Like real estate, home improvements, or college tuition.
Personal interest extends beyond interest paid on credit cards. It also includes interest paid on auto loans and other unpaid bills.
Exception for Businesses and Self-Employed Individuals | Is credit card interest tax deductible?
Credit card interest tax may be deducted as a business expense for businesses, contractors, and other self-employed individuals. For accounting purposes, it’s best to use a separate credit card for business expenses. You can easily calculate the business interest you’ve paid by using your monthly credit card billing statements. Otherwise, if you use a credit card that you’ve used for personal and business purchases. You’ll have to separate out your business expenses, then calculate the amount of interest you paid for the business.
You can deduct credit card interest paid for business expenses even if the credit card is not specifically a business credit card. For record-keeping purposes, file away your receipts and credit card statements detailing interest. So you have them when it’s time to file your tax return.
Types of Interest That Are Tax-Deductible
While personal credit card interest can’t be deducted, there are other types of interest that you may be able to deduct, according to William Perez, U.S. Tax Planning Expert.
To deduct this type of interest, you must have paid the interest on a mortgage loan or student loan—not a credit card used for those expenses. You could use a home equity loan to pay off your credit cards, then deduct the interest paid on your home equity loan. It could benefit you in the long run, since home equity loans often have a lower interest rate. But, remember that your home is on the line if you default on the payments.
Consult with a tax professional about your tax situation to get specific advice about whether the interest you paid is tax-deductible.