Deducting credit card interest is a no-no
Today's question comes from Del B. of Newport, Tennessee, who wants to know a little more about what kinds of interest payments can be considered deductible.
Q: I know that home mortgage interest is usually deductible from my taxes, but what about credit card interest payments, especially if my purchases were for home improvements? Is the interest on these purchases deductible?
A: The short answer is: "No, credit card interest is not deductible."
According to the IRS,
Luckily, there ARE other types of interest that are dedeductible.
Itemized deductions on IRS Form 1040, Schedule A, can include investment interest and home mortgage interest, including points in certain circumstances. You also can deduct student loan interest.
Home mortgage interest is condsidered interest you pay on a loan secured by your main home or a second home. The loan may be a mortgage to buy your home, a second mortgage, a home equity loan, or a line of credit. But don't confuse a line of credit with a credit card. They are not the same thing. That's why it often makes more sense to take out a line of credit on your home's equity or a home equity loan to fund repairs and improvements, rather than charging it to a credit card. Do the math, comparing interest rates, fees, etc. to see what makes the most sense for you.
According to the IRS, your main home is where you live most of the time. It could be a house, coop apartment, condominium, mobile home, house trailer or even a houseboat that has sleeping, cooking and toilet facilities.
A second home can include any other residence you own, and treat as a second home.
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Q: I know that home mortgage interest is usually deductible from my taxes, but what about credit card interest payments, especially if my purchases were for home improvements? Is the interest on these purchases deductible?
A: The short answer is: "No, credit card interest is not deductible."
According to the IRS,
You cannot deduct personal interest. Personal interest includes interest paid on a loan to purchase a car for personal use, credit card and installment interest incurred for personal expenses. Items you cannot deduct as interest include points (if you are a seller), service charges, credit investigation fees, and interest relating to tax–exempt income, such as interest to purchase or carry tax–exempt securities.
Luckily, there ARE other types of interest that are dedeductible.
Itemized deductions on IRS Form 1040, Schedule A, can include investment interest and home mortgage interest, including points in certain circumstances. You also can deduct student loan interest.
Home mortgage interest is condsidered interest you pay on a loan secured by your main home or a second home. The loan may be a mortgage to buy your home, a second mortgage, a home equity loan, or a line of credit. But don't confuse a line of credit with a credit card. They are not the same thing. That's why it often makes more sense to take out a line of credit on your home's equity or a home equity loan to fund repairs and improvements, rather than charging it to a credit card. Do the math, comparing interest rates, fees, etc. to see what makes the most sense for you.
According to the IRS, your main home is where you live most of the time. It could be a house, coop apartment, condominium, mobile home, house trailer or even a houseboat that has sleeping, cooking and toilet facilities.
A second home can include any other residence you own, and treat as a second home.
posted by Scott at
8:19 AM
1 Comments:
I remember when credit card interest was deductible. When did the rule change? My husband (who is not in charge of our family finances) was incredulous when I told him the rules had changed. Wasn't it something like 20 years ago?
Thanks!
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