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Is Credit Card Interest Tax Deductible?

Whether you're eligible for a tax deduction depends on if you use your card for personal or business expenses.

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While some forms of interest are tax deductible, unfortunately, credit card interest is not one of them. That means if you’ve been swipe-happy in the hopes of writing off some of the interest you accrued on your account, you won’t be able to deduct your credit card interest when tax season comes around.

But if you’re self-employed or a business owner, you can deduct credit card interest accrued on your business credit card.

Here’s what to know about credit card interest and your taxes, and some other tips on how to lower the amount of interest you pay.

Can you deduct credit card interest?

In the 1980s, credit card interest was actually deductible. However, following the Tax Reform Act of 1986, personal credit card interest was no longer deductible.

The only way for you to deduct credit card interest is if it’s a business expense. If you’re a business owner with a business credit card, you could be eligible for a tax deduction. However, if you use your card for any personal expenses, you won’t be able to deduct your credit card interest.

To keep it simple, keep your business and personal expenses separate. Mixing the two will unnecessarily complicate your accounting, making it more difficult when tax season rolls around.

Are credit card rewards taxable?

Credit card rewards aren’t considered earned income, which means you typically don’t have to worry about paying taxes for them. The IRS classifies credit card rewards -- whether it’s points, miles or cash back -- as a rebate or discount on purchases.

However, if you earn a referral bonus or welcome bonus without having to meet a spending threshold from your credit card, you may owe taxes on this money. That’s because it was earned free of any spending requirements, a main stipulation that prevents credit card rewards from counting as taxable.

What types of interest are deductible?

According to the IRS, the below forms of deductible interest are tax-deductible:

If the interest you’ve paid doesn’t fall into one of those categories, it will likely be coded as “personal interest,” and remain ineligible for a tax deduction. But we recommend talking to a tax specialist if you have any questions.

How to avoid credit card interest

While a tax break on interest can help you earn some of your money back, it’s a better practice to try to avoid interest altogether. And that’s especially true for credit cards, which often have higher annual percentage rates than other types of financing, like personal loans.

Interest charges on credit cards can add up quickly. The best way to avoid costly interest charges is to pay off your entire credit card bill in full each month. That’s easier to do if you treat your credit card like a debit card or cash, and avoid spending outside of your budget. To get into this habit, try paying off a purchase as soon as you make it to avoid carrying a balance.

If you do need to carry a balance, or you’re dealing with expensive interest charges on a credit card, consider looking into a credit card with an introductory 0% APR. They can help you avoid any interest charges for a disclosed amount of time. A balance transfer credit card could also help you get rid of some existing credit card debt while halting interest for a promotional period of time.

The bottom line

Credit card interest is only tax-deductible for business owners or freelancers who use a credit card for business expenses. To lower your interest payments on your individual credit card, always pay your bill on time and in full. If you’re struggling with credit card debt and high interest payments, consider transferring the remaining balance to a balance transfer card.

Correction: An earlier version of this article was assisted by an AI engine and it mischaracterized some aspects of credit cards. Those points were all corrected, and we also replaced phrases that were not entirely original. This version has been substantially updated by a staff writer.

The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.

Evan Zimmer has been writing about finance for years. After graduating with a journalism degree from SUNY Oswego, he wrote credit card content for Credit Card Insider (now Money Tips) before moving to ZDNET Finance to cover credit card, banking and blockchain news. He currently works with CNET Money to bring readers the most accurate and up-to-date financial information. Otherwise, you can find him reading, rock climbing, snowboarding and enjoying the outdoors.
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