@tschapira
I think the point is you simply cannot make that election in this instance; you have to report the $50,000 as income and cannot choose to offset that $50,000 by claiming you are returning $50,000 worth of the loan balance to yourself.
For example, if you purchase a house and the bank lends you $200,000 (a traditional mortgage), your total mortgage payment might be around $900 per month with, very roughly, $550 of that total payment being interest and $350 being repayment of the principal balance. The bank, as a result, must report the $550 worth of interest as income and cannot offset that $550 be deducting the $350 worth of principal it received.
When you advance a loan, the entire loan is not tax deductible currently because you expect to receive the balance of the loan back at some point in time; it is not a deductible expense.
