Business Interest and the Things You Need to Know!

Jessica has taken out a loan and is going to use most it to get her business started, however, a small portion of it will be used for personal reasons.  She is hoping that because it is a business loan, she will be able to deduct all the interest.

Unfortunately, Jessica will only be able to deduct the interest that is allocated to the amount of the loan that is going toward the business.

On January 1st, Jessica receives a loan for $100,000.  She puts the money into a checking account.  On March 1st she pays $80,000 for business activity, $15,000 she uses for personal use and $5,000 remains in the checking account.

She would allocate the following:

100% of the interest from January 1 – March 1, toward investment interest expense.

80% of the interest from March 1 – Dec 31, toward business interest expense.

15% of the interest from March 1 – Dec 31, toward personal interest expense, which is nondeductible.

5% of the interest from March 1 – Dec 31, toward investment interest expense.

Jessica paid several different vendors for her business on March 1st, the payment is treated as made on the date the check was written, provided that the payment is mailed or delivered within days after it is written.

Have you received a loan and are unsure of how to record the interest?  Contact us at or 407-988-5647 if you need assistance.

Categories: Tax Information

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