Taking policy loans #5: Writing off interest

Before I begin I want to let you know that the content of this post is in no way to be construed as legal or accounting advice. Please consult with your CPA before writing off any interest.

Now that’s out of the way, let’s talk about writing off loan interest.

If you are taking a policy loan and the loan is to be used for a business purpose or for a home mortgage there is a good chance that you can write off the interest you are paying.

This is the actual interest being charged by the insurance company, not the amount of interest you have determined to repay yourself.

If, for example, you need to buy a new piece of equipment for your practice you may want to structure your loan and repayment in the following manner:

Since you likely are the owner of your policy, all policy loans will be made to you. This means you will need to loan the money to your practice. Your practice will purchase the equipment and will in turn repay you for the money borrowed. You then repay the insurance company. The actual amount of interest paid to insurance company should ultimately be deductible by your business if the loan money was used to buy equipment for your practice.

As far as the logistics and legalities of this are concerned, you will need to discuss them with your CPA. Also, since every loan you take from the insurance company is consolidated into a single loan, your CPA may have to calculate the amount of interest that you can deduct if you have taken loans for both personal and business use.

While I’m on this topic, no insurance company I have ever worked with will give accounting or legal advice. These accounting details should be a fairly straightforward task for a competent tax preparer so please direct your specific accounting questions to them.