Is the interest on credit cards tax deductible?

Feb 08, 2024 By Triston Martin

Unfortunately, Interest on credit card balances is not a type of interest payment that may be written off against taxes. The tax code classifies the Interest you pay on credit cards as "personal interest," a category that hasn't been eligible for a deduction since the 1980s.

History of the personal interest deduction

Interest on credit card debt and other personal debt could no longer be deducted from income taxes before the Tax Reform Act of 1986 was passed by Congress.

This is because Interest earned on savings was considered taxable income, although tax liabilities may be reduced by deducting Interest paid on credit card debt from income.

Payments Of Interest That Are Tax Deductible

According to the IRS, only a few interest payments are tax deductible: Mortgage interest (including mortgages and home equity loans), Charges for outstanding student loan balances, and Interest paid on loans used to purchase an investment property.

Interest as a business expense

Personal Interest is any additional interest, such as that charged on credit cards, auto loans, past-due utility bills, and unpaid or overdue federal, state, and municipal income taxes.

Credit card interest is a legitimate business expense.

However, the debt must be related to trade or business. You cannot charge personal spending on your company credit card and deduct the Interest as a business expense.

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Interest on personal costs is not tax deductible.

The 1980s saw a significant overhaul of the tax code with the passing of The Tax Reform Act of 1986. One of the adjustments prohibited taxpayers from deducting Interest paid on outstanding balances on personal credit card accounts. 1

This means that since personal interest deductions are not allowed, you cannot deduct Interest paid on credit cards, personal loans used for discretionary expenditure, service fees, or Interest related to tax-exempt income unrelated to business expenses.

Businesses and self-employed people are exempt.

If you work on contracts or run a business, you might be able to deduct the interest you spent on your credit card. Credit card interest is deductible by companies, independent contractors, and other self-employed people when used for genuine business expenses. 2 The use of your credit card to pay for expenses means that you must bear full responsibility for the credit card purchases.

The IRS does not require a company credit card to be used, so you can deduct credit card interest for business expenses even if they were paid for with a personal credit card. Again, separate personal and business expenses and calculate the Interest paid on business expenses.


Use a distinct credit card for business expenses to make recordkeeping easier. For recordkeeping purposes, save your credit card statements with interest information and receipts, so you have them on hand to prepare your tax return.

Interest Charges for Allowable Credit

There is a cap on the amount of business interest that can be written off for tax years beginning after December 31, 2017, for companies with gross receipts of $26 million or more. Only the following amounts may be deducted:

Your business's interest income accounts for 30% of your variable taxable income (or up to 50% in some cases). Interest in your finance for the floor plan

Interest Products That Are Tax Deductible

Personal credit card interest is not one of the types of Interest that may be qualified for a tax deduction.

If you are the home buyer, then your mortgage interest is eligible.

interest being paid on investments (limited to your net investment income)

4 Interest on student loans, up to $2,500 paid over the year, if you meet certain minimal standards.

5 Interest on business debt for allowable business expenses

The TJCA has altered how Interest on home equity loans can be written off against taxes. Such Interest is tax deductible when used to acquire, build, or improve your property. Unfortunately, when you take a home equity loan to pay off credit card debt or other personal living expenses, the Interest you paid is no longer tax deductible.

The Outcome

Interest on credit card purchases made by consumers for personal use is not deductible. The Interest you pay on eligible business purchases may be deductible, regardless of the credit card you use.

Talk to a tax professional about your tax situation to receive detailed advice on whether the Interest you paid is tax deductible.

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