See other intuit thread - daveandrade89 states that There are actually situations where the interest on a 401(k) loan would be deductible, but they are very rare. For example, let's say you were borrowing from your 401(k) to finance the purchase of a rental property -- this interest would be considered deductible if (and only if) the funds you are borrowing from your account are NOT your own elective deferrals. Essentially, you'd have to borrow exclusively from your employer's matching / profit sharing funds and have to prove that they were used for a deductible reason (i.e. a rental property). Now, not sure exactly how to prove that was done since when I borrowed from my 401k, there was no option to select ONLY from my employers matching funds, even though these were adequate to cover my modest loan.
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