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Interest on Business Debts

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Interest on Business Debts

What You May Deduct
You may deduct interest on loans taken out for your business, including mortgages on business property, term loans, and lines of credit. The IRS says you may deduct interest on business loans if:

  • You are legally liable for that debt.
  • Both you and the lender intend that the debt be repaid.
  • You and the lender have a true debtor-creditor relationship.

What You May NOT Deduct for Interest
You may not deduct interest that must be capitalized, nor may you deduct personal interest.

Where to Show these Expenses

  • For sole proprietors and single-member LLCs, show these expenses in the "Expenses" section of Schedule C
  • For partnerships and multiple-member LLCs, show these expenses in the "Deductions" section of Form 1065
  • For corporations, show these expenses in the "Deductions" section of Form 1120.

For More Information
IRS interest deduction rules are complicated. See IRS Publication 535 for more detailed information.

Disclaimer
This article presents general information; I am not a tax attorney or tax preparation specialist. Refer to IRS publications and refer questions to your tax consultant.

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