When you borrow money, can you deduct the interest? That depends on the circumstances. Interest deductibility for tax purposes is generally dependent on the purpose for which the loan proceeds are used:
If an individual borrows for investment purposes, such as acquiring securities that produce taxable dividends, interest and capital gains, then the interest on such borrowing may be deductible as “investment interest,” subject to certain limitations.
Generally, investment interest may be deducted against investment income. Thus, you can use the interest expense to offset the tax you’ll owe on interest income, dividends, and capital gains.
If the borrowing is for a personal purposes, such as paying a tax liability, the interest would be “personal interest,” and therefore not deductible.
If the borrowing is for business purposes, the interest may be deductible as “business interest.”