Tax Facts

7921 / Is the penalty paid for early withdrawal of funds in a time deposit tax deductible?

Updated: October 23, 2026 at 07:05 PM
Yes. Interest and principal forfeited to a bank or other financial institution as a penalty for premature withdrawal of funds from a certificate of deposit or other time deposit are deductible “above-the-line” (i.e., in calculating adjusted gross income and not as an itemized deduction) for income tax purposes.1




1. IRC § 62(a)(9); Temp. Treas. Reg. § 1.62-1T(c)(10); Rev. Rul. 827, 1982-1 CB 32; Rev. Rul. 750, 1975-1 CB 29; Rev. Rul. 751, 1975-1 CB 367.


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