Are Business Loan Payments Tax Deductible? What You Can and Can’t Write Off

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Are Business Loan Payments Tax Deductible? What You Can and Can’t Write Off

If you’re running a small business and have taken out a loan to fund operations, expansion, or equipment, you may be wondering: Are business loan payments tax deductible?

The answer is a bit nuanced. While the principal portion of your loan payments is not deductible, the interest you pay on the loan often is—provided the loan is used strictly for business purposes.

At Hogan CPA Financial Services, we help business owners clarify what qualifies as a deduction, how to track loan-related expenses accurately, and how to stay IRS-compliant when managing debt.

Understanding Loan Payment Components

Each loan payment is typically split into two parts:

  • Principal: The amount you borrowed and are paying back.

  • Interest: The cost of borrowing the money.

While paying back the principal isn’t deductible (since it’s not considered a business expense), the interest can usually be written off—as long as the funds were used for business-related activities.

Deductible: Interest on Business Loans

You may be able to deduct interest on loans used for:

  • Buying inventory or equipment

  • Paying employees or contractors

  • Expanding business operations

  • Marketing or operational expenses

  • Purchasing a business vehicle or commercial property

To claim these deductions, you must be able to show:

  1. The loan was used exclusively for business purposes

  2. You are legally liable for the debt

  3. You’re making actual interest payments (not accrued, unpaid interest)

Not Deductible: Loan Principal and Personal Use

You cannot deduct the following:

  • Repayment of the loan principal

  • Loan proceeds used for personal expenses

  • Interest on loans used for both personal and business purposes, unless the business portion is clearly documented

Proper recordkeeping is essential. If you’re mixing personal and business use of funds, it becomes harder to justify deductions and easier to trigger an IRS audit.

How to Accurately Track Loan Expenses

Bookkeeping plays a key role in determining what’s deductible. With professional support, you can accurately analyze income, expenses, and financial trends—including loan-related transactions.

That means:

  • Tracking loan disbursements by purpose

  • Separating principal vs. interest in your accounting system

  • Matching interest deductions to appropriate tax forms (like Schedule C or 1120)

If you’re unsure how to structure your loan payments on your books, a small business CPA can help ensure everything is clean, categorized, and audit-ready.

Are SBA and Other Government-Backed Loans Deductible?

Yes—but the same rules apply. Whether it’s an SBA loan, bank line of credit, or financing from a private lender, interest is deductible, but principal is not. Keep all loan agreements and payment records on file to support your claims.

Make Every Dollar Work for You

Strategically using business loans can fuel growth—but only if you track them correctly and claim the right deductions. Misclassifying payments or overlooking interest deductions can lead to missed tax savings—or worse, red flags with the IRS.

At Hogan CPA Financial Services, we help businesses of all sizes make sense of their financial structure, debt strategy, and tax positioning. Whether you’ve just taken out a loan or are planning for one, we can help you stay on track.

Contact us today to schedule a consultation and ensure your loan payments and tax filings are working together—not against you.