Personal loans

Forum|Forum|3 years ago
April 7, 2023
3 replies
33 views

I borrowed from a family member in 2010 to build my personal residence. The interest rate was 5% and I used the property as security. In 2022 I made my first payment which was all interest. I did not get a 1098 from the person i borrowed the money from. How or where or can I deduct the interest I paid. Thank you for help.

bluedeb

Alumni - Champ

Can you deduct interest on a personal loan for a home? Interest paid on personal loans is not tax deductible. If you borrow to buy a car for personal use or to cover other personal expenses, the interest you pay on that loan does not reduce your tax liability. Similarly, interest paid on credit card balances is also generally not tax deductible.

You would not enter the interest.

Monikak11

Level 2

Mortgage interest is only deductible on secured loans. To qualify, the loan must also be secured by the property it was used to buy, build, or improve.

A secured loan is a loan backed by collateral—financial assets you own, like a home or a car—that can be used as payment to the lender if you don't pay back the loan.

Beginning in 2018, only the amount of a home loan that is used to buy, build, or improve your home qualifies for the home mortgage interest deduction.

Please see this article and this one for more information on home mortgages from TurboTax. See IRS Publication 936 for more information on mortgage interest deductions.

bluedeb

Alumni - Champ

@marcgoetz If it is claimed the IRS may send you a letter regarding the loan.

In the event of an IRS inquiry, you'll need the records that document the interest you paid. These include:

Copies of Form 1098: Mortgage Interest Statement. Form 1098 is the statement your lender sends you to let you know how much mortgage interest you paid during the year and, if you purchased your home in the current year, any deductible points you paid.
Your closing statement from a refinancing that shows the loan proceeds and the points you paid, if any, to refinance the loan on your property.
The name, Social Security number and address of the person you bought your home from, if you pay your mortgage interest to that person, as well as the amount of interest (including any points) you paid for the year.
Your federal tax return from last year, if you refinanced your mortgage last year or earlier, and if you're deducting the eligible portion of your interest over the life of your mortgage.