Is Credit Card Interest Tax Deductible

I’m glad you’re reaching out about this because it’s a question that often pops up, especially during tax season.

Credit card interest is not tax deductible.

But as with most things in the tax world, there are some exceptions and it’s all about the specifics.

For most personal expenses, credit card interest cannot be deducted from your taxable income on your federal income tax return. This rule applies across the board to all personal expenses, whether it’s that fancy new phone you’ve been eyeing or your weekly groceries. Let’s say, for example, you bought a new refrigerator worth $2,000 on your credit card, and you accrued $200 in interest because you didn’t pay off the balance immediately. Unfortunately, you can’t deduct this $200 from your taxable income.

The Tax Reform Act of 1986 eliminated the personal interest deduction, and it hasn’t been brought back since. The goal was to simplify the tax code and encourage more productive investment, although it does mean that credit card interest typically can’t give you a tax break.

However, there are some notable exceptions. If you’re using a credit card for business expenses, the interest is usually tax deductible. The IRS allows a deduction for business expenses that are both “ordinary” and “necessary.” If you’re a business owner or self-employed and you’ve used your credit card to buy something for your business, the interest you pay on that purchase can be deducted.

For instance, imagine you’re a freelance graphic designer and you’ve purchased a new high-tech drawing tablet for $1,000 on your business credit card. You don’t manage to pay off the full balance immediately and end up with $100 in interest. In this case, that $100 of interest would be tax deductible as a business expense, as it was an ordinary and necessary expense that you incurred for your business.

Similarly, the interest is deductible if you’re using your credit card to invest in something that produces taxable income, like rental properties or securities. For instance, if you were to use your credit card to pay for expenses related to your rental property, the interest incurred could be deducted.

Bear in mind, tax laws can be complicated and change over time, so always consider seeking advice from a tax professional to understand your specific situation. What I’ve shared here gives you a general understanding of how things typically work, but individual circumstances can always vary.


  1. Is credit card interest tax deductible? Generally, no. Personal credit card interest is not tax deductible. The Tax Reform Act of 1986 eliminated the personal interest deduction. This means if you’re buying personal goods or services and not paying your balance off immediately, the interest charged is not eligible for a tax deduction.
  2. Are there exceptions where credit card interest might be tax deductible? Yes, there are exceptions. If you use a credit card for business expenses and you’re a business owner or self-employed, the interest on these expenses can be tax deductible. The IRS allows a deduction for business expenses that are both “ordinary” and “necessary.”
  3. Can I deduct credit card interest if I use my card for investment purposes? Yes, if you use your credit card for investment purposes that generate taxable income, such as maintaining a rental property or purchasing securities, the interest incurred can be deducted.
  4. Can I deduct credit card interest for large personal purchases, like a car or home renovation? Unfortunately, no. Even for large personal purchases, credit card interest isn’t deductible. The only case where large purchase interest might be deductible is if it’s classified as home mortgage interest or investment interest.
  5. Is the interest on a credit card used for both personal and business expenses partially deductible? Potentially, yes. If a credit card is used for both personal and business expenses, the interest on the business-related purchases can be deducted. You would need to carefully track and separate your business and personal expenses.
  6. Are there any other types of personal interest that are tax deductible? Yes, there are a few types of personal interest that are tax deductible, such as student loan interest and home mortgage interest. However, these are exceptions rather than the rule
  7. Can I deduct credit card fees and charges? As a rule of thumb, credit card fees and charges are treated similarly to credit card interest. Personal credit card fees are not typically tax deductible. However, if these fees and charges are related to a business or investment activity, you may be able to deduct them.
  8. What documents do I need to keep to prove my business-related credit card interest expenses? You should retain credit card statements, receipts, and any other documents that provide proof of the business expenses you’ve paid with your credit card. You should also have records that show the interest you paid on these expenses.
  9. Do I need a separate business credit card to deduct business-related interest? You don’t need a separate business credit card to deduct business-related interest, but having one can make your record-keeping process much simpler. If you use a personal card for both business and personal expenses, you must be diligent about separating and tracking those expenses.
  10. How do I report deductible credit card interest on my tax return? Deductible business interest is usually reported on Schedule C (Profit or Loss from Business) if you’re a sole proprietor or single-member LLC. If your business is a partnership, multi-member LLC, or corporation, it gets a bit more complicated and the interest would be reported on the respective business tax return. Investment interest is reported on Form 4952 and Schedule A.
  11. Are cash advances on my credit card tax deductible? Similar to credit card interest, the interest on cash advances isn’t deductible if it’s for personal use. If the cash advance is used for business or investment purposes, the interest could be deductible.


Hope this helps clarify things a bit!