Is Credit Card Interest Tax Deductible?

Is Credit Card Interest Tax Deductible?

Credit card interest is not deductible from your personal income. Even if you itemize your deductions, you can't deduct credit card interest on personal debt. Rules surrounding this deduction changed with the Tax Reform Act of 1986, which disallows tax deductions for personal interest expenses.

Is Business Credit Card Interest Tax Deductible?

Business interest is a different story. Loan and credit card interest may be deductible from your business income if the debt you've incurred is for business expenses. Here are a few guidelines to know:

• Consider business expenses only. Interest on personal expenses isn't tax deductible, even if you used a business credit card to make the purchase.
• Separate business and personal interest. If you've used your credit card to make both business and personal purchases, calculate the portion of your interest charges that pertain only to your business debt.
• Maintain a separate business card. You can simplify your accounting by maintaining a separate card for business use only. Having a dedicated business card saves you the trouble of separating business and personal expenses (and interest) at tax time.

Learn more: Tax Deductions for Self-Employed Taxpayers

What Other Types of Interest Are Tax Deductible?

Although interest on personal credit card debt is not deductible, other types of interest are. Here's a quick rundown of common interest expenses you may be able to deduct, especially if you itemize deductions on your tax return.

• Mortgage interest: Interest paid on the first $750,000 of mortgage debt is deductible when you itemize deductions on your tax return. Eligible debt includes a primary mortgage on your first or second home, as well as home equity loans used to buy, build or substantially improve the home.
• Prepaid points: If you used prepaid interest, or points, to lower your mortgage interest rate, you may be able to deduct your points along with your mortgage interest. However, the deduction generally must be spread over the life of the mortgage.
• Student loan interest: You can deduct up to $2,500 in interest expenses on a qualifying student loan. To be eligible, you must be legally required to pay the interest, meet income limitations and have used the debt to pay education expenses for yourself, your spouse or a qualified dependent.
• Investment interest: You may be able to use investment interest expenses to offset gains when calculating your net investment income. See IRS Publication 550 for details.
• New car loan interest: Effective from 2025 to 2028, people with incomes of $100,000 or less ($200,000 for joint filers) may deduct up to $10,000 in interest paid on qualifying new car loans. To qualify, your loan must be used to secure the purchase (not lease) of a new car with final assembly in the U.S. This deduction is available whether you itemize or claim the standard deduction.

Tip: The One Big Beautiful Bill Act includes provisions that may affect your taxes in 2025 and beyond. Learn more about new changes to the tax brackets, standard deductions, energy credits and more.

How to Avoid Paying Interest on Credit Cards

Paying interest on your credit card purchases isn't inevitable. You can avoid credit card interest by paying your bill in full every month, avoiding cash advances and using balance transfers wisely.

• Pay in full each month. As long as you avoid carrying a balance, you can generally get around interest charges by paying your bill in full during your monthly grace period. A grace period gives you roughly 21 days from your monthly statement date to pay your bill before incurring interest.
• Be careful with cash advances. Avoiding interest charges is more difficult on cash advances. Many cards charge a cash advance fee of 3% to 6% when you receive your money, and there's no grace period on cash advances. You may also pay a higher annual percentage rate (APR) on these charges.
• Read the fine print on balance transfers. If you do carry a balance, using a 0% introductory APR balance transfer offer can help you save money on interest. But beware of prepaid interest charges and mind the expiration date on your promotional rate. If you don't pay off your balance before your promo rate expires, you'll be on the hook for interest charges.

Digital tools can make it easier to pay your bill in full every month, but make sure you're still monitoring your finances. Set automatic payments to pay your full balance on the same day each month. But also, consider using a budgeting app to track your purchases—and your bank account balance—so you don't accidentally overspend or allow your account balance to go negative.

Learn more: How to Avoid Paying Credit Card Interest

The Bottom Line

If you're looking for a bit of financial relief from credit card interest charges, you probably don't want to look at the IRS. Interest on your personal credit card debt is not tax deductible, though other types of interest may be. On balance, you may be better off focusing on avoiding interest charges on your credit cards wherever you can.

Keeping your credit card interest rate low is another strategy to consider. Good credit is key to getting the best APRs. Maintain good credit habits and use free credit monitoring from Experian to keep track of changes to your credit file that could affect your eligibility for the best rates on credit cards and loans.