Business loan interest belongs on Line 16b, interest, other.
Why line 16b
Interest on a term loan, an SBA loan or a business line of credit is other business interest on line 16b, provided the money went into the business. Only the interest is deductible; the principal you repay is not an expense. Line 16a is for mortgage interest on real property, so even a bank loan stays on 16b unless it is secured by real property the business uses.
Stop looking up lines one at a time. ClaryBook totals your year into an IRS Schedule C worksheet in form order, Part I and Part II line by line, so business loan interest lands on Line 16b without you sorting it.
Start for freeWhat business loan interest is confused with
- Line 16a, interest, mortgage
- If the bank loan is a mortgage on real property you use in the business, the interest moves up to line 16a.
- Line 27a, other expenses
- Origination fees, guarantee fees and packaging charges are not interest; they are other expenses, and points on a term loan are spread over the life of the loan.
- not deductible, not deductible
- Interest on the share of the proceeds you spent on something personal is personal interest with no deduction.
Examples that belong on line 16b
- $2,860 of interest on a $60,000 SBA loan used for working capital
- Interest on a $25,000 equipment term loan from a credit union
- $410 of interest on draws against a $50,000 business line of credit
- Interest on a short-term inventory loan taken in October and repaid in January
What does not belong here
- The principal portion of each payment
- Origination or guarantee fees, which are not interest
- Interest on the part of a loan you spent on something personal
- Interest accrued but not yet paid, if you file on the cash method
What to keep
Keep the note, the lender's year-end interest statement or amortization schedule, and the bank record showing where the proceeds went. Tracing the proceeds is what proves this is business interest.
Other expenses on line 16b
| Expense | Line |
|---|---|
| a merchant cash advance finance charge | Schedule C, Line 16b |
| business credit card interest | Schedule C, Line 16b |
| car loan interest | Schedule C, Line 16b |
| interest on a personal loan used in the business | Schedule C, Line 16b |
Related lookups
- Where does business mortgage interest go?
- Where do client gifts go on Schedule C?
- Is a car payment deductible on Schedule C?
Sources
This page explains how Schedule C lines work. It is general information, not tax advice for your situation. If an expense is large or the answer turns on a fact about your business, confirm it with your tax preparer.
Looking for a different expense? The full Schedule C line lookup has every line from 8 to 27 with the expenses that belong on each, and Schedule C expense categories walks the whole form in order.
Stop looking up lines one at a time. ClaryBook totals your year into an IRS Schedule C worksheet in form order, Part I and Part II line by line, so business loan interest lands on Line 16b without you sorting it.
Start for free