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previous page Previous Page: Publication 535 - Business Expenses - Capitalization of Interest
next page Next Page: Publication 535 - Business Expenses - Below-Market Loans
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication
taxmap/pubs/p535-016.htm#en_us_publink1000153628

When To 
Deduct Interest(p14)


rule
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previous topic occurrence Interest Expense next topic occurrence

If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows.
taxmap/pubs/p535-016.htm#en_us_publink1000153629

Cash method.(p14)


rule
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Under the cash method, you can generally deduct only the interest you actually paid during the tax year. You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment.
taxmap/pubs/p535-016.htm#en_us_publink1000153630

Prepaid interest.(p14)
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You generally cannot deduct any interest paid before the year it is due. Interest paid in advance can be deducted only in the tax year in which it is due.
taxmap/pubs/p535-016.htm#en_us_publink1000153631

Discounted loan.(p14)
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If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier.
taxmap/pubs/p535-016.htm#en_us_publink1000153632

Refunds of interest.(p14)
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If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax.
taxmap/pubs/p535-016.htm#en_us_publink1000153633

Accrual method.(p14)


rule
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Under an accrual method, you can deduct only interest that has accrued during the tax year.
taxmap/pubs/p535-016.htm#en_us_publink1000153634

Prepaid interest.(p14)
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See Prepaid interest, above.
taxmap/pubs/p535-016.htm#en_us_publink1000153635

Discounted loan.(p14)
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See Discounted loan, above.
taxmap/pubs/p535-016.htm#en_us_publink1000153636

Tax deficiency.(p14)
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If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you.
However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid.
taxmap/pubs/p535-016.htm#en_us_publink1000153637

Related person.(p14)
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If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. See section 267 of the Internal Revenue Code for more information.
previous pagePrevious Page: Publication 535 - Business Expenses - Capitalization of Interest
next pageNext Page: Publication 535 - Business Expenses - Below-Market Loans
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication