Intuit Academy Tax Practice Exam

Interest from personal loans is generally classified as a non-deductible personal expense on tax returns. This classification means that individuals cannot deduct interest paid on loans taken out for personal reasons such as financing personal purchases, household expenses, or other non-business expenses when calculating their taxable income.

IRS guidelines specify that personal interest, including that from personal loans, credit cards used for personal spending, and other non-business related debts, does not qualify for tax deductions. This ensures that only interest associated with qualified expenses, such as qualified home mortgages or business loans, can be deducted, thereby maintaining fairness and relevance within the tax framework.

In contrast, interest from business loans or qualified mortgages can have different tax treatments, which can lead to different implications on a taxpayer's return, but for personal loans, the rule is clear: the interest is considered a non-deductible expense.