How Are Business Lines of Credit Taxed?

A business line of credit is not considered taxable income. Interest can be deductible as long as you are legally liable for the debt and the loan was used in your trade or business.

Income

Loans and lines of credit are never considered income.

Deductions

Interest on a business line of credit is fully deductible as investment interest as long as the funds are used for the purpose of trade or business.

Partial Liability

If you are named on a business line of credit but are only responsible for 50 percent of the loan and only use that portion for your trade or business, then you can only deduct 50 percent of the interest expense.

Personal Line of Credit

Personal lines of credit that are not used for the purpose of a business or trade are considered personal interest and are therefore not a tax deduction.

Tax Return

If you are a sole proprietorship you'll deduct the interest on Line 16b of your Schedule C. If your business is a corporation, you will deduct the interest on Line 18 of form 1120.

References

• IRS: Publication 535; Business Expenses

Resources

• IRS: Form 1040; Schedule C; Profit or Loss From Business
• IRS Form 1120; U.S. Corporate Income Tax Return