Promissory note interest deductible?

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Is interest deductible on a promissory note? if I loaned X amount of money from a person, and that person charged me say $200 as interest? Thanks

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generalya said: Is interest deductible on a promissory note? if I loaned X amount of money from a person, and that person charged me say $200 as interest? Thanks
Not unless you can trace the proceeds of the loan directly to a business expense or to a taxable investment. Or unless the loan is secured by a properly recorded mortgage (or similar) on a qualified residence.

Loan was for another loan out to someone else with a higher interst rate. So it can be traced to a business income. Can the loan be considered as business expense?

generalya said: Loan was for another loan out to someone else with a higher interst rate. So it can be traced to a business income. Can the loan be considered as business expense?Are you reporting the interest income for the other loan?

Yes

generalya said: YesIt is going to be investment interest expense then. See form 4952.

theman2 said: It is going to be investment interest expense then. See form 4952.You are taking generalya's word that the proceeds can be traced, which is possible but not necessarily true, but not taking his word that the lending is a business (which does seem unlikely)?

LH2004 said: theman2 said: It is going to be investment interest expense then. See form 4952.You are taking generalya's word that the proceeds can be traced, which is possible but not necessarily true, but not taking his word that the lending is a business (which does seem unlikely)?thanks for fixing my typos

I have yet to see an individual tax return where a taxpayer is 'in the business of lending' where the income and expenses are reported on a sch C. I suppose it would be possible if OP is running a payday loan shop or some other really obscure scenario.

If OP has a loan secured by real property in a state where he is not a resident, it is possible that he has a filing requirement (and may owe tax) in the non-resident state since the interest income associated with the loan is sourced to that state.

Everyone of FWF loves the idea that, if you get a business credit card, form an LLC, or something else random, that you can turn your investment income into business income and deduct all your expenses on Sch C/1065/1120/etc. It doesn't work that way. Investment expenses are deductible on Sch A. If you don't have enough deductions to itemize (or don't have enough to 2% misc deductions to actually use any of them), you are not going to be able to deduct the expenses.

But yeah, I guess I'm taking OP's word that the proceeds from the loan can be traced.



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