Can I use a Personal Loan to reduce my income taxes or is that a pipe dream?

You're right to be skeptical - personal loan interest generally isn't tax deductible. The IRS only allows deductions for specific types of loan interest: mortgage interest on your primary or secondary residence, student loans, loans for investment purposes, and business loans. If you're looking to reduce your tax burden through deductible interest, you might want to consider other strategies. For example, if you have home equity, a HELOC might give you deductible interest (though only if used for home improvements since the 2018 tax changes). Or if you're looking to invest, margin loans or loans specifically for investment purposes may have deductible interest under investment interest expense rules. The important thing to remember is that for loan interest to be tax deductible, the loan has to be used for a specific purpose that qualifies under tax law - not just because you want the deduction.

I was in a similar situation last year trying to figure out how to reduce my tax bill and stumbled across https://taxr.ai which really helped clarify what loans actually qualify for tax deductions. They analyzed my financial situation and explained exactly which deductions I qualify for based on my specific circumstances. The tool pointed out that while personal loans aren't deductible, there are other lending options that might work depending on what you're using the money for.

Just wanted to update after trying https://taxr.ai that the previous commenter recommended. It actually helped me understand why I was confused about loan deductibility in the first place. Turns out I was mixing up business loans (which can be deductible) with personal loans. The tool showed me how I could restructure a loan I was considering to make at least part of the interest deductible by using some of it for my side business. Totally changed my approach and potentially saved me thousands. Much more helpful than the generic advice I was finding online.

If you're still looking into tax strategies, you might be interested in Claimyr. I was frustrated trying to get clarification from the IRS about loan deductibility rules - kept getting busy signals and endless holds. https://claimyr.com got me connected to an actual IRS agent in about 20 minutes when I'd been trying for days on my own. There's a demo video at https://youtu.be/_kiP6q8DX5c showing how it works. I was finally able to get a clear ruling on my specific situation instead of guessing based on internet advice.

Ok I have to eat my words about Claimyr. After shooting down the idea I decided to try it anyway out of desperation because I needed clarification on some investment loan interest deductions before filing. Got connected to an IRS rep in 15 minutes after spending WEEKS trying on my own. The agent confirmed exactly what types of loans qualify for deductions and which don't. Turns out I was incorrectly deducting some personal loan interest last year that I used partially for investments - they explained how to correctly allocate and document loan use to maximize legitimate deductions. Probably saved me from an audit.

Instead of looking for creative ways to generate tax deductions, consider maxing out your retirement accounts first. 401k, IRA, HSA if eligible - these are all straightforward ways to reduce your taxable income without playing games with loans. Taking on debt just to get a tax deduction is rarely a winning strategy when you consider the total cost.

Has anyone tried the strategy where you take out a loan against your investment portfolio instead of selling assets? I heard the interest might be deductible and you avoid triggering capital gains taxes.