The Internal Revenue Service may allow the deduction of interest when it's related to your primary home mortgage, investment interest or student loans, but that's as generous as it gets for interest income related to goods and services purchased for personal use. Credit card and installment expenses incurred for personal use are not deductible. However, you can deduct credit card interest related to business purchases.
No Personal Items
Personal interest refers to the cost of borrowing money for items not used for business-related purposes. When you buy items on your personal credit card, the assumption is that they are for personal use. As a result, when you don't pay off your balance each month, the interest that accrues can't be taken off your income for tax purposes.
Credit card interest on purchases made for business purposes is tax-deductible. Financing equipment and supplies allows you to subtract the interest expense from your income when it comes to figuring out your business' tax burden. It's treated as any other business expense that you itemize when calculating profits subject to taxation. Save credit card statements that detail both the items purchased and the interest charged to prove your case if the IRS ever questions your deduction.
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It's best not to mix personal and business expenses on a credit card. Doing so puts the burden on you to figure out how much interest was related to business purposes and how much was from personal expenses. If you do inadvertently place business expenses on a personal card, or vice-versa, highlight those items on your bill and include your calculations in how you determined interest. One example when this comes into play is travel expenses: If you bring your spouse along on a business trip and charge everything to one card, you'll need to separate out the personal expenses from the business ones when determining what can be deducted.
Home Equity Loans
Should your personal credit card debt and tax bill both be high enough, a home equity loan may be an option. You're allowed to deduct the interest on home equity loans of up to $100,000 on your taxes regardless of what you spend the proceeds on, so that will allow you to deduct the financing costs you would ordinarily be on the hook for. However, it also converts the unsecured credit card debt into an obligation secured by your house. This makes it harder to discharge in bankruptcy and places your home at risk of tax liens or foreclosure if you can't handle the payments.