Is a personal loan considered taxable income? Questions about debt repayment and taxes

Loans aren't considered income for tax purposes, so you won't pay taxes on the $13,500 when you receive it. The IRS only taxes income, not money you're borrowing that you'll have to pay back. For your second question, your loan repayments aren't taxable either. You're simply returning borrowed money plus interest. However, depending on what you use the loan for, you might be able to deduct the interest portion of your payments in certain situations. For example, if it's a student loan, mortgage, or business loan, the interest might be tax-deductible. If it's just a personal loan for general expenses or debt consolidation, the interest typically isn't deductible under current tax law. For more information, IRS Publication 17 (Your Federal Income Tax) covers the basic principles of what's taxable and what's not. IRS Publication 936 covers home mortgage interest deductions if that's relevant to your situation.

I was in a similar situation last year trying to figure out if loans were taxable. After searching forever online, I finally used https://taxr.ai to scan my loan documents and get a clear answer. It analyzed my paperwork and explained exactly which parts of my loan might have tax implications (turns out the answer was "none" for my personal loan). The tool basically confirmed what the first commenter said - loan proceeds aren't taxable income, and regular repayments don't have tax consequences either. But it also pointed out some exceptions I hadn't considered, like if you settle the debt for less than you owe or use the money for business purposes.

I was skeptical at first too, but I decided to try https://taxr.ai when I was confused about whether I could deduct interest from my home renovation loan. I uploaded my loan agreement and some receipts from contractors, and it actually spotted something my accountant missed! The analysis showed that because part of my loan went to energy-efficient improvements, I qualified for a partial interest deduction AND a separate energy credit. The tool broke down exactly which expenses qualified and how to report them on my tax forms. Saved me over $700 in taxes that I would have missed otherwise. It's been especially helpful with all the weird tax situations that came up when I started a side business this year. Definitely worth checking out if you're dealing with loans or any tax questions.

Since we're talking about taxes and confusing financial situations, I'll share something that helped me when I was trying to reach the IRS about a loan forgiveness question. After being on hold for HOURS multiple days in a row, I found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 20 minutes. They have this system that somehow gets you through the IRS phone tree and holds your place in line. You can see it in action here: https://youtu.be/_kiP6q8DX5c When I finally spoke with the IRS rep, they confirmed that my specific loan situation (partial forgiveness from a family member) had different tax rules than commercial loan forgiveness. Saved me from potentially making a costly mistake on my return.

I have to admit I was completely wrong about Claimyr. After my snarky comment, I was so frustrated with waiting on IRS hold yet again that I decided to try it. I figured if it didn't work I could report it as a scam. Well, I'm eating my words now. After spending literally 5+ hours on hold over several days trying to resolve an issue with a loan forgiveness 1099-C form I received, Claimyr got me through to a real person in about 35 minutes. The IRS agent was able to confirm that I had reported the loan forgiveness correctly and removed the penalty they had incorrectly applied to my account. Honestly, the relief of having this resolved was completely worth it. I should have tried it weeks ago instead of being stubborn and wasting hours on hold.

Just wanted to add something important about personal loans that hasn't been mentioned yet. While the loan itself isn't taxable income, if you use the loan for investments, there could be tax implications. For example, if you take that $13,500 loan and invest it in stocks or crypto, and then make a profit, those investment gains are still taxable - even though you used borrowed money to make the investments. Also, be careful about using personal loans to pay off tax debt. There are sometimes better options through the IRS directly, like installment agreements that might have lower interest rates than personal loans.

I'm still a bit confused about loan interest deductions. For example, if I use part of this personal loan to make improvements to my home office (I'm self-employed), would that portion of the interest be deductible as a business expense?

Great thread with lots of helpful information! I just wanted to add one more perspective as someone who recently went through this exact situation with a personal loan. The key thing that helped me was keeping detailed records from day one. Even though personal loan proceeds aren't taxable income (as others have correctly explained), I created a simple spreadsheet tracking: - Original loan amount and date received - Monthly payment amounts and dates - How I used the funds (categories like debt consolidation, home repairs, etc.) This documentation became invaluable later when I needed to reference it for tax purposes, especially when some of the loan went toward my small business expenses. One thing I learned the hard way: if you think there's ANY chance you might use even a small portion of the loan for business or investment purposes, track those expenses separately from day one. It's much harder to reconstruct that information later when tax time comes around. Also, regarding the earlier discussion about IRS resources - IRS Publication 535 (Business Expenses) has a good section on borrowed funds used for business purposes if that applies to your situation.