Loan proceeds aren't taxable when you receive them. If you borrow money from a bank or other institution and don't pay it back, you could receive a Form 1099-C for Cancellation of Debt income.
When you pay back a loan with interest, the receiver reports the interest income.
Payment of interest is only deductible if it's for a loan secured by your personal residence, or for business purposes.
See this article for more information on the deductibility of interest.
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