If you hope to deduct credit card interest on your next federal tax return, you may be out of luck. The U.S. Tax Code does not allow tax deductions for interest paid on personal credit cards. However, under certain circumstances, the code does permit tax deductions for interest paid on business credit cards.

“Interest deductions are valid only in certain narrowly defined categories of the Tax Code, such as home mortgage interest, some student loan interest, and business-related interest,” said attorney and CPA Mario Serralta, founder of law firm Mario Serralta & Associates.

Personal Credit Card Interest Deduction

The Tax Reform Act of 1986, which overhauled the U.S. tax system, wiped out the credit card interest tax deduction for personal (non-business) purchases.

Why there’s so much credit card interest tax misinformation:

• People confuse credit card interest with deductible interest like mortgage interest, student loan interest, or investment interest expense.

• People assume “I used a business card” automatically means “deductible,” but IRS rules focus on the purpose of the purchase.

• People think interest works like itemized deductions for everyone, even when the interest is personal and therefore non-deductible.

CPA Mitchell Nelson, founder and CEO of FileTax.com explains that credit card charges for your family’s groceries, clothing, and vacations, for example, are not deductible. Even interest paid on personal purchases made on business credit cards is not eligible for a tax deduction.

Bottom line: Americans can’t take advantage of perhaps millions of dollars in potential tax write-offs for personal credit card interest. A WalletHub analysis found that in 2024, credit card holders in the U.S. paid more than $254 billion in interest and fees.

Example: If total credit card interest for the tax year is $2,400 on personal spending, that $2,400 typically does not reduce taxable income because personal credit card interest tax treatment is generally non-deductible.

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Business Credit Card Interest Deduction

Although personal credit card interest is not tax-deductible, business credit card interest might be, along with a late fee for credit card payments, annual fees, and other charges. These expenses usually include rent, internet service, utilities, travel, and other “ordinary and necessary” costs tied to business income and operations.

For anyone deducting credit card interest, the key is proving the charges were business expenses, not personal expenses, and keeping records that support the business purpose for tax purposes.

How to deduct credit card interest for business (simple checklist)

1. Confirm the charges are business expenses (ordinary and necessary for business income).

2. Separate personal expenses from business expenses, or clearly tag transactions in your records.

3. If a card is mixed-use, allocate the deductible portion instead of guessing.

4. Report the deduction on the right form for your entity (for example, Schedule C for a sole proprietorship or single-member LLC; partnerships and corporations use different forms).

5. Keep receipts, statements, and notes that explain the business purpose of each charge for tax purposes.

Interest paid on purchases made on business cards belonging to self-employed business owners (sole proprietorships and single-member LLCs) typically can report on the IRS’ Schedule C. Other businesses generally can report business credit card interest on IRS Form 1065 (partnerships), 1120S (S corporations), or 1120 (C corporations).

Separating Business Expenses from Personal Expenses

Tax experts advise business owners to keep business expenses separate from personal expenses to make it easier to compute credit card interest deductions and to simplify tax accounting.

J.R. Faris, president and CEO of Accountalent, a provider of tax and accounting services for startups, explained that the IRS views every transaction based on its purpose, not on the payment method.

So, if a startup founder charges $10,000 worth of personal travel expenses on a business credit card, they would be unable to deduct credit card interest associated with those expenses. But if the founder uses the same card to pay $10,000 for business travel expenses, they should be able to deduct the credit card interest.

Example: The IRS lens is “what was bought” not “how it was paid,” so a business card does not transform personal expenses into deductible interest.

Be Sure to Properly Allocate Business Expenses

Faris said some business professionals mix business and personal expenses on a credit card without tracking or allocating charges. That can cause them to miss a tax deduction for the business credit card interest portion.

Without adequate records, he said, a business professional with a 25% share of a credit card balance tied to business expenses might fail to claim the deduction tied to that 25% share.

Example: If total interest for the tax year is $1,200 and tracking shows 25% of the revolving balance relates to business expenses, the potentially deductible interest is $300, assuming the allocation matches how the balance was carried and the business purpose is supportable.

Clean allocation helps determine the deductible portion instead of relying on estimates, Faris said. It can also save time at filing, reduce the odds of delays, and lower avoidable audit risk.

Best Credit Cards for Separating Business Expenses

To steer clear of commingling business and personal expenses, experts suggest dedicating at least one credit card for business expenses and dedicating other cards for personal expenses. It’s the business version of separation of church and state, a principle outlined in the First Amendment of the U.S. Constitution.

What are the best small business credit cards for separating and tracking expenses? The table below provides a rundown of three business card options that could be right for you.

Important clarity: A business card can make tracking easier, but a business card alone doesn’t make interest deductible. The deduction depends on whether the underlying charges were business expenses for tax purposes.

Should You Worry About Tax Deductions for Business Credit Card Interest?

Serralta, the CPA and attorney, recommends that small businesses concern themselves less with tax deductions for business credit card interest and more with the costs of carrying credit card debt.

“Be aware of how the interest compounds, because daily compounding interest on revolving credit can make it balloon faster than many [people] anticipate,” Serralta said.

A practical lens for small business owners: A tax deduction reduces taxable income, not the interest bill itself. So even when a business credit card interest deduction applies, the business still pays the interest in cash. That’s why many tax professionals focus first on clean tracking and second on cost control. In practice, deducting credit card interest comes down to documentation: you need to show the interest relates to business expenses, not personal expenses.

How to Reduce the Burden of Credit Card Interest

If your business is going through a rough time, consider contacting your credit card issuers to seek a temporary break on interest rates, or to arrange a payment program with a longer timeline or lower monthly payments. One popular way to achieve this is with a 0% intro APR offer, but it's vital to understand what 0% APR means before accepting.

A 2024 survey by market research company J.D. Power found that among the 51% of small businesses classified as financially unhealthy, 61% were carrying debt on business credit cards and 63% were using those cards to cover operating expenses. Annual percentage rates (APRs) for business credit cards often range from 18% to 36%.

Given the potential burden of credit card debt, attorney David Dozier said small businesses should look into consolidating balances at lower APRs and paying more than the minimum payment each month to ease the impact of interest charges. Dozier is managing partner of the Dozier Law Firm, whose specialties include bankruptcy, personal injury, and criminal defense.

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Other Types of Deductible Interest

While the Tax Reform Act of 1986 did away with tax deductions for interest paid on personal credit cards, it didn’t touch several tax deductions for interest. This includes deductions for investment interest, home mortgage interest, and some student loan interest.

Investment Interest Deduction

If your business borrows money to invest in assets that generate taxable investment income or that gain in value, you normally can deduct investment interest expenses. However, the deduction is limited to the amount of taxable investment income earned in the same tax year.

The investment interest deduction can be claimed by completing IRS Schedule A and filing IRS form 4952.

Home Mortgage Interest Tax Deduction

IRS rules break down the home mortgage interest deduction into three categories:

1. A mortgage taken out on or before October 13, 1987. This is known as “grandfathered debt.”

2. A mortgage you (or your spouse if you’re married and filing a joint return) took out after October 13, 1987, and before December 16, 2017… This applies to any mortgage for buying, building, or “substantially improving” a home, but only if the mortgage plus any grandfathered debt didn’t exceed $1 million ($500,000 if you’re married and filing separately).

3. A mortgage you (or your spouse if you’re married and filing a joint return) took out after December 15, 2017, to buy, build, or “substantially improve” a home… This takes effect only if the mortgage plus any grandfathered debt didn’t exceed $750,000 ($375,000 if you’re married and filing separately).

Use IRS Schedule A (Form 1040 or 1040-SR) to claim a mortgage interest deduction.

If you take out a home equity loan, the interest cannot be deducted no matter when it was charged if the loan did not go toward buying, building, or “substantially improving” a home.

Student Loan Interest Tax Deduction

Borrowers with federal or private student loans might qualify to deduct as much as $2,500 of student loan interest per tax return and per tax year, or the amount of interest you actually paid during the tax year, based on which dollar amount is lower.

Fortunately, you don’t need to itemize deductions to take advantage of the deduction for student loan interest. Instead, you can claim the deduction by treating it as an adjustment to your modified adjusted gross income (MAGI).

To claim a student loan interest deduction, obtain Form 1098-E from your lender and transfer that information to Schedule 1 (Form 1040, 1040-SR, or 1040-NR).

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FAQs: Credit Card Interest and Tax Deduction

Is credit card interest tax-deductible?

For personal purchases, credit card interest is generally non-deductible under IRS rules. Business-related interest may be deductible when tied to documented business expenses.

Can I deduct credit card interest on taxes if I used a business card?

Using a business card alone doesn’t make interest deductible. The purchase must be for business purposes, and the business use must be documented.

How to deduct credit card interest for a sole proprietorship?

A sole proprietorship typically reports deductible business interest with other business expenses, often on Schedule C. Good record-keeping helps support the business purpose.

Disclosures:

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