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 personal loans, much like mortgages or auto loans, are a form of debt that must be repaid with interest over time to the lender.
Only loan proceeds that are categorized as cancellation of debt income need to be reported as taxable income. This occurs if a portion of your outstanding loan balance is forgiven by the lender and you're relieved of the repayment obligation.
However, the interest paid on personal loans is generally not tax deductible for the borrower, unlike certain other interest expenses like mortgage interest or student loan interest. An exception applies if the loan was used exclusively to fund certaintax-deductible investments.
As long as you're diligently making payments on a personal loan according to the terms, the loan principal itself is not subject to income tax. Just be mindful that defaulting could lead to taxable cancellation of debt income implications. Consult a tax professional if you find yourself in debt settlement proceedings.
Only loan proceeds that are categorized as cancellation of debt income need to be reported as taxable income. This occurs if a portion of your outstanding loan balance is forgiven by the lender and you're relieved of the repayment obligation.
However, the interest paid on personal loans is generally not tax deductible for the borrower, unlike certain other interest expenses like mortgage interest or student loan interest. An exception applies if the loan was used exclusively to fund certaintax-deductible investments.
As long as you're diligently making payments on a personal loan according to the terms, the loan principal itself is not subject to income tax. Just be mindful that defaulting could lead to taxable cancellation of debt income implications. Consult a tax professional if you find yourself in debt settlement proceedings.
