How to Deduct Interest on Schedule C, Line 16

tax deductible mortgage interest

Deduct Mortgage Interest - Interest cost is a deductible cost for Sole Proprietors on Schedule C, Line 16. The purpose of this article is to make sure you milk the many sorts of the many types of interest expense going to attract in your small business.

Line 16 of Schedule C offers two main categories of interest expense: Mortgage interest (Line 16a) and Other (Line 16b). Let’s take a closer look at each of these categories.

Mortgage Interest. If you purchase real estate for use in your business, for example a commercial office building or a storefront property, and take out a mortgage on that property, the interest cost on that loan is a hundred percent deductible. Be sure to take this interest here ( on Schedule C) rather than as a private itemized deduction ( on Schedule A). The explanation : interest deducted on Schedule C is worth a bit in tax savings than interest deducted on Schedule A, because any Schedule C cost will reduce both tax and self-employment tax and self-employment tax; any Schedule A cost will reduce only income tax.

Another word of caution: If you are taking the SOHO Office deduction, be sure to subtract the business portion of your residential mortgage interest on Form 8829 instead of here on Schedule C. The business portion of that interest will flow from Form 8829 to your Schedule C, Line 30.

Other Interest. There are many kinds of valid non-mortgage business interest. A couple of the most typical are:

1. Auto loan interest, to the extent the auto was used for business. So, if your car is used 100% for business, than 100% of the car loan interest is deductible. Most Sole Proprietors drive the same vehicle for both business and private use, so you will have to apply the business use % ( business miles divided by total miles ) to the automobile loan interest to pinpoint the deductible amount. Helpful tip: you get to deduct to subtract vehicle loan interest without reference to whether you use the particular Cost Technique or the Mileage Rate Method.

2. Visa card interest, again, to the extent that the items purchased with that credit card are used for your are used for your business. If you have a Credit card that is used exclusively for business items, then any interest or finance charges are completely deductible. But if you are using that Visa card for both private and business items, you could have to do an allocation based on the acquisition cost of the various items charged to that account. Helpful tip: pick one Credit card that you use exclusively for business purchases and you can avoid dealing with the grant calculation.

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