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IRS.gov Website
Publication 535
taxmap/pubs/p535-014.htm#en_us_publink1000243122

Interest You 
Cannot Deduct(p13)

rule
Certain interest payments cannot be deducted. In addition, certain other expenses that may seem to be interest are not, and you cannot deduct them as interest.
You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest.
taxmap/pubs/p535-014.htm#en_us_publink1000243123

Interest paid with funds borrowed from original lender.(p13)

rule
If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. You can deduct the interest expense once you start making payments on the new loan.
When you make a payment on the new loan, you first apply the payment to interest and then to the principal. All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply.
taxmap/pubs/p535-014.htm#en_us_publink1000243124

Capitalized interest.(p13)

rule
You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. See Capitalization of Interest, later. In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. Add this interest to the basis of the property.
taxmap/pubs/p535-014.htm#en_us_publink1000243125

Commitment fees or standby charges.(p13)

rule
Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. You may be able to deduct them as business expenses.
If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. See Capitalization of Interest, later.
taxmap/pubs/p535-014.htm#en_us_publink1000243126

Interest on income tax.(p13)

rule
Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. Treat this interest as a business deduction only in figuring a net operating loss deduction.
taxmap/pubs/p535-014.htm#en_us_publink1000243127
Penalties.(p13)
Penalties on underpaid deficiencies and underpaid estimated tax are not interest. You cannot deduct them. Generally, you cannot deduct any fines or penalties.
taxmap/pubs/p535-014.htm#en_us_publink1000243128

Interest on loans with respect to life insurance policies.(p13)

rule
You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person.
If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month.
taxmap/pubs/p535-014.htm#en_us_publink1000243129
Who is a key person?(p13)
A key person is an officer or 20% owner. However, the number of individuals you can treat as key persons is limited to the greater of the following.
taxmap/pubs/p535-014.htm#en_us_publink1000243130
Exceptions for pre-June 1997 contracts.(p14)
You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract.
taxmap/pubs/p535-014.htm#en_us_publink1000243131
Interest allocated to unborrowed policy cash value.(p14)
Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. For more information, see section 264(f) of the Internal Revenue Code.