Tax Facts

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

Updated: December 31, 2024 at 07:50 AM
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. 82-27, 1982-1 CB 32; Rev. Rul. 75-20, 1975-1 CB 29; Rev. Rul. 75-21, 1975-1 CB 367.

Tax Facts Premium Tools
Calculators
100+ calculators specifically designed to help you easily assist clients with specific planning situations and calculations.
Practice Guidance
Designed to help you discover new ways for which to build and maintain client relationships.
Concepts Illustrated
Specifically designed to help you easily assist clients with specific planning situations and calculations.
Tax Facts Archives
Access to the entire library of Tax Facts dating back to 2012 allowing you to look up the exact tax figures from prior years.