Principal repayment of a loan is never tax-deductible.
Business interest
expense is an amount charged for the use of
money you borrowed for business activities.
You can generally deduct as a business expense all interest you pay [or accrue, if you use the accrual method of accounting] during the
tax year on debts related to your trade or business. Interest relates to your trade or business if
you use the proceeds of the loan for a trade or
business expense. It does not matter what type
of property secures the loan. You can deduct interest on a debt only if you meet all the following
requirements.
- You are legally liable for that debt.
- Both you and the lender intend that the
debt be repaid.
- You and the lender have a true
debtor-creditor relationship.
If you are self-employed and file Schedule C to report your business activities, non-mortgage business interest is reported in Part II, Line 16b.
For more information, please see IRS Pub. 535 Business Expenses, Chapter 4.