A personal loan is not taxable income, but there could be tax implications if it’s used for business expenses or forgiven.
Updated Feb 27, 2024 · 1 min read Written by Nicole Dow Nicole Dow
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Nicole Dow is a freelance writer and editor based in Tampa Bay, Florida. Her work has been featured in The Penny Hoarder and Yahoo Finance, among other outlets. She holds a journalism degree from Hampton University.
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Lead Assigning Editor | Consumer lending
Kim Lowe is a lead assigning editor on NerdWallet's loans team. She covers consumer borrowing, including topics like personal loans, student loans, buy now, pay later and cash advance apps. She joined NerdWallet in 2016 after 15 years at MSN.com, where she held various content roles including editor-in-chief of the health and food sections. Kim started her career as a writer for print and web publications that covered the mortgage, supermarket and restaurant industries. Kim earned a bachelor's degree in journalism from the University of Iowa and a Master of Business Administration from the University of Washington. She works from her home near Portland, Oregon.
Fact Checked Co-written by Chanell Alexander Chanell Alexander
Writer | Junior Achievement, SREB, Founders Marketing, Atlanta Small Business Network
Chanell Alexander is a student loans writer and content specialist for NerdWallet. Prior to that, she managed a financial literacy program for middle school students at Junior Achievement and operated a freelance writing company. Her work has been featured by the Atlanta Small Business Network and CBT News, among others. Chanell has a degree in public policy from Georgia State University and a Master of Business Administration from the University of Georgia.
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Nerdy takeawaysPersonal loans aren’t considered income, so you usually don’t pay taxes on them.
While a personal loan provides you with a lump sum of money that you can spend like income, you must repay it, which makes it a liability rather than taxable income.
A personal loan used for a common personal expense such as debt consolidation , a home improvement project or a wedding is unlikely to have any impact on your tax filings.
However, the loan may become relevant to your taxes if you use the funds in certain ways or if the lender forgives part of the debt.
Unlike interest on a mortgage or student loan, personal loan interest is typically not tax-deductible .
However, there are a few instances when you may be able to deduct the interest. It depends on how you use the funds.
If you use a personal loan to cover business expenses , for example, the interest you pay could be tax-deductible. This means you could reduce your taxable income by the amount you spent on interest throughout the year.
Interest also may be deductible if you use the loan for educational expenses or certain taxable investments, but lenders often prohibit using a personal loan for those purposes.
Need help with taxes? Consult a tax advisor to fully understand the tax implications of your personal loan. Verify credentials and compare fees to select the best tax professional for you.
In the rare instances when a lender forgives a portion of a personal loan, the forgiven amount can become income and the borrower may need to pay taxes on it.
For example, if you receive a $10,000 loan and the lender forgives $2,000 of it, you may need to pay taxes on the $2,000.
If more than $600 of your debt is canceled, you’ll receive a Form 1099-C from the lender or debt collector with information about the canceled amount. Regardless of the amount, the forgiven debt should be reported on your tax return as income, according to the IRS.
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Nicole Dow is a freelance writer and editor based in Tampa Bay, Florida. Her work has been featured in The Penny Hoarder and Yahoo Finance, among other outlets. She holds a journalism degree from Hampton University. See full bio.
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