Tax Facts
8031 / What is personal interest? Is it deductible?
Personal interest is generally interest on debt incurred to buy consumer items (other than loans secured by a personal residence, as discussed in Q 8032), such as cars, televisions, etc. Personal interest is any interest other than interest allocable to passive activities ( Q 8010), trade or business interest, investment interest ( Q 8040), qualified residence interest ( Q 8032), or interest payable under IRC Section 6601 on any unpaid portion of federal estate tax during the period there is an extension of time for payment in effect with respect to a reversionary or remainder interest.1 Personal interest is not deductible.2
Personal interest includes interest on tax deficiencies. See Robinson v. Comm.,3 where it was held (1) that Temporary Treasury Regulation Sections 1.163-8T and 1.163-9T(b)(2)(i)(A) are valid, (2) that the interest on the underpayment of the taxpayer’s income tax liability was nondeductible personal interest and (3) that Redlark v. Comm.4 will no longer be followed.5 Personal interest also includes otherwise deductible borrowing to buy personal life insurance.
Interest on qualified higher education loans (see Q 8048) is not personal interest.6
The allocation of debt to expenditures under temporary regulations is explained in Q 8043.
1. IRC § 163(h)(2).
2. IRC § 163(h)(1).
3. 119 TC 44 (2002).
4. 106 TC 31 (1996), rev’d and remanded, 141 F.3d 936 (9th Cir. 1998).
5. See also Alfaro v. Comm., TC Memo 2002-309 (following Robinson, above), aff’d, 349 F. 2d 225 2003-2 USTC ¶ 50,715 (5th Cir. 2003); Fitzmaurice v. U.S., 87 AFTR 2d 1254, 2001-1 USTC ¶ 50,198 (S.D. Tex. 2001).
6. IRC § 163(h)(2)(F).
Personal interest includes interest on tax deficiencies. See Robinson v. Comm.,3 where it was held (1) that Temporary Treasury Regulation Sections 1.163-8T and 1.163-9T(b)(2)(i)(A) are valid, (2) that the interest on the underpayment of the taxpayer’s income tax liability was nondeductible personal interest and (3) that Redlark v. Comm.4 will no longer be followed.5 Personal interest also includes otherwise deductible borrowing to buy personal life insurance.
Interest on qualified higher education loans (see Q 8048) is not personal interest.6
The allocation of debt to expenditures under temporary regulations is explained in Q 8043.
1. IRC § 163(h)(2).
2. IRC § 163(h)(1).
3. 119 TC 44 (2002).
4. 106 TC 31 (1996), rev’d and remanded, 141 F.3d 936 (9th Cir. 1998).
5. See also Alfaro v. Comm., TC Memo 2002-309 (following Robinson, above), aff’d, 349 F. 2d 225 2003-2 USTC ¶ 50,715 (5th Cir. 2003); Fitzmaurice v. U.S., 87 AFTR 2d 1254, 2001-1 USTC ¶ 50,198 (S.D. Tex. 2001).
6. IRC § 163(h)(2)(F).
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