Yusra3
VIP Contributor
When you take out a personal loan, the funds you receive are not considered taxable income by the IRS. This is because loan proceeds are not earned income, but rather borrowed money that must be repaid with interest over time.
However, the interest paid on personal loans is generally not tax deductible for the borrower. There are a few exceptions where personal loan interest may qualify for deductions, such as using the loan for certain investment expenses or qualified student loan interest. But for most unsecured personal loans, the IRS classifies the interest as personal interest which is not deductible.
Defaulting on a personal loan without repaying could lead to taxable cancellation of debt income if the lender eventually forgives or discharges the remaining balance. But as long as you repay the full loan amount as agreed, there should be no impact on your tax return from simply taking out and making payments on a personal loan.
So in summary, while personal loans themselves are not taxable income, you also cannot deduct the interest paid unless it meets very specific qualified expense criteria outlined by the IRS. Proper documentation is key if you do attempt to claim loan interest deductions.
However, the interest paid on personal loans is generally not tax deductible for the borrower. There are a few exceptions where personal loan interest may qualify for deductions, such as using the loan for certain investment expenses or qualified student loan interest. But for most unsecured personal loans, the IRS classifies the interest as personal interest which is not deductible.
Defaulting on a personal loan without repaying could lead to taxable cancellation of debt income if the lender eventually forgives or discharges the remaining balance. But as long as you repay the full loan amount as agreed, there should be no impact on your tax return from simply taking out and making payments on a personal loan.
So in summary, while personal loans themselves are not taxable income, you also cannot deduct the interest paid unless it meets very specific qualified expense criteria outlined by the IRS. Proper documentation is key if you do attempt to claim loan interest deductions.
