Is Credit Card Interest Tax Deductible? A lot of people do not enjoy paying tax, even if they want to, they always try to reduce it somehow. It is very dangerous to deduct a non-deductible tax. It can badly affect your credit score and history. However, Credit card interest makes a nice deductible expense, this is more pronounced when you pay a lot of dollars in interest over the year. Let’s see what this article says.
Is Credit Card Interest Tax Deductible? No Deduction for Personal Credit Card Interest
On or before 1960, individuals could deduct credit card interest on their tax return. But from 1980 upwards, a lot of changes were made to the tax code with the passing of The Tax Reform Act of 1986. From then, personal credit card interest was removed from a deductible expense. Now, cardholders cannot deduct interest paid 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. This personal interest includes all unpaid bills, auto loan, and credit cards.
Business Owners and their Exceptions
Credit card interest is often deductible as a business expense for businesses, contractors, and other self-employed individuals. It is safest 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. Or, if you use a particular card for personal and business purchases, draw a calculation and make your conclusion.
Furthermore, cardholders can deduct credit card interest paid for business expenses. What can they do? Safeguard your receipts and credit card statements detailing interest. Properly file them for your tax return. This is because they will be needed. The person that prepares your tax will appreciate your orderliness.
Is Credit Card Interest Tax Deductible? Tax Deductible Interests
Perez, a U.S. Tax Planning Expert, opines that the following taxes are deductible.
- Margin interest on investment
- Student loan
- Mortgage interest
Also, to deduct this type of interest, pay the interest on a mortgage loan or student loan. Use a home equity loan to pay off your credit cards, deduct the interest paid on your home equity loan. A late payment can cost you your house. Be careful.
Conclusively, before you deduct any tax do the followings.
- Seek the advice of a tax professional about your tax situation
- Ensure that the interest you paid is tax deductible.
- For student loans, consult the lending financial institution to verify it.
The essence of making all the inquiries is to be on the safer side and avoid mistakes.