tax deduction for 30k loan
The loan itself is not tax deductible; unless you took it as part of a mortgage, anyway, it's just a regular loan.  Mortgage and Student Loan Interest deductions are special cases explicitly given tax-deductible status; other loans are not deductible (unless part of a business expense or other qualifying reason). If this were a short sale (which you note it was not but included for completeness' sake), and some of your debt was cancelled, that may have tax implications.  You cannot take a capital loss on your personal residence, so the loss itself is not deductible.
"Most likely that's the amount of interest that accrued on the loan while you were in school.  If you had paid that amount before 6/21, you would have just paid off accrued interest and your loan balance would have stayed the same. Since you did not pay the interest, it will be added to your loan balance and you will just pay it off as part of the loan (plus compounded interest).   If you pay off your loan at 5% over 30 years (hopefully you won't, but that's what they're amortized for), that $350 will compound and become $1,563.  Essentially you're ""borrowing"" $350 at 5% interest for 30 years. Hopefully that motivates you to pay it off sooner that that..." I will add one point missing from the answers by CQM and THEAO. When you take a loan and invest the proceeds, the interest that you pay on the loan is deductible on Schedule A, Line 14 of your Federal income tax return under the category of Investment Interest Expense.  If the  interest expense is larger than all your investment earnings (not just those from the loan proceeds), then you can deduct at most the amount of the earnings, and carry over the excess investment interest paid this year for deduction  against investment earnings in future years. Also, if some of the earnings are long-term capital gains and you choose to deduct the corresponding investment interest expense, then those capital gains are taxed as ordinary income instead of at the favored LTCG rate. You also have the option of choosing to deduct only that amount of interest that offsets dividend (and short-term capital gain) income that is taxed at ordinary rates, pay tax at the LTCG rate on the capital gains, and carry over rest of the interest for deduction in future years. In previous years when the tax laws called for  reduction in the Schedule A deductions for high-income earners, this investment interest expense was exempt from the reduction. Whether future tax laws will allow this exemption depends on Congress. So, this should be taken into account when dealing with the taxes issue in deciding whether to take a loan to invest in the stock market. When discussing buying a home I often hear people say they like having   a mortgage because they get the benefit of writing off the interest. I assume this is the United States.  You need to also consider that many people can take the standard deduction of about $12k for married couples filing jointly, so even if they itemize the interest, it would only make sense to 'write it off' if you are able to itemize deductions greater than the standard deduction:  Source: http://www.forbes.com/sites/kellyphillipserb/2013/10/31/irs-announces-2014-tax-brackets-standard-deduction-amounts-and-more/ So some people will input the mortgage interest and other related deductions into the computer only to find out that their itemized deductions don't add up. Where it benefits people sometimes is if they have medical bills which are greater than 10% of their income in addition to the mortgage interest. So it benefits them to itemize. There are other major sources of itemization but medical bills are very common. Other common items are auto registration taxes or interest from student loans. It is going to be situation dependent, but if you are within a few years of paying off the mortgage it would make sense to make micropayments to accelerate the payoff date. If you have 30 years to go, it would make more sense to generate an emergency fund, pay off a car, or save up for other things in life than worry about paying off a mortgage. Take the benefit of deducting the mortgage interest if you can, but I imagine that many people would be surprised to hear that it's not always black and white. "I'm not familiar with the law and taxes in India but can provide guidance based on general accounting and tax principles. You are right that receiving money as a loan is not income and isn't liable to income tax. Therefore i suggest you actually formalise this loan through a written contract with your friend. The contract should include all the usual elements of a loan: amount, interest (even if preferential or zero), principal, term, consequences of default and currency of loan. You can then simply state the purpose of transfer as ""Personal Loan Agreement"". If you have such a document and are questioned by tax authorities you can easily show that the inward remittance is from a loan and should therefore be treated like any commercial loan for tax purposes. As long as you disclose the debt in your tax return (if required in India) and your friend discloses any interest received as income i think you'll be above board and won't be liable for any income tax. To make sure, you might be better off having a quick consultation with an accountant or tax specialist in India to advise you and draft the loan agreement." Imagine a married couple without a mortgage, but live in a house fully paid for. They pay state income taxes, and property tax, and make charitable deductions  that together total $12,599. That is $1 below the standard deduction for 2015, therefore they don't itemize.  Now they decide to get a mortgage: $100,000 for 30 years at 4%. That first year they pay about $4,000 in interest. Now it makes sense to itemize. That $4,000 in interest plus their other deductions means that if they are in the 25% bracket they cut their tax bill by $1,000. These numbers will decrease each year.  If they have a use for that pile of cash: such as a new roof, or a 100% sure investment that is guaranteed make more money for them then they are losing in interest it makes sense. But spending $4,000 to save $1,000 doesn't. Using the pile of cash to pay off the new mortgage means that the bank is collecting $4,000 a year so you can send $1,000 less to Uncle Sam. You need to report the interest expense, assuming the loans were for your business: You need to report interest expense (only interest, principle is not an expense just as the loan proceeds are not income). The interest expense goes to the appropriate line on your Schedule C or E (depending on whether you used the loan for the online business or the rental). People whom you borrowed from must also report the interest as income to them on their Schedule B. You cannot deduct the interest expense if they don't report it as interest income. If you didn't take the loans for your business then the interest is not deductible. You don't need to report anything. People who lent you money still have to report the interest you paid to them as income on Schedule B. If you paid no interest (free loan) or below/above market interest to a related party (family member), then the imputed interest is considered income to them and gift to you. They need to report it on their Schedule B, and depending on amounts - on a gift tax return. For $1K to $10K loans there probably will be no need in gift tax returns, the exemption is for $14K per year per person. If the imputed interest rules may apply to you, better talk to a licensed tax adviser on how to proceed. At this time there is one advantage of having a 30 year loan right now over a 15 year loan.  The down side is you will be paying 1% higher interest rate. So the question is can you beat 1% on the money you save every month. So Lets say instead of going with 15 year mortgage I get a 30 and put the $200 monthly difference in lets say the DIA fund.  Will I make more on that money than the interest I am losing?  My answer is probably yes.  Plus lets factor in inflation.  If we have any high inflation for a few years in the middle of that 30 not only with the true value of what you owe go down but the interest you can make in the bank could be higher than the 4% you are paying for your 30 year loan.   Just a risk reward thing I think more people should consider. "You need to do a bit more research and as @littleadv often wisely advises, consult a professional, in this case a tax layer or CPA. You are not allowed to just pull money out of a property and write off the interest.  From Deducting Mortgage Interest FAQs If you own rental property and borrow against it to buy a home, the   interest does not qualify as mortgage interest because the loan is not   secured by the home itself. Interest paid on that loan can't be   deducted as a rental expense either, because the funds were not used   for the rental property. The interest expense is actually considered   personal interest, which is no longer deductible. This is not exactly your situation of course, but it illustrates the restriction that will apply to you.  Elsewhere in the article, it references how, if used for a business, the interest deduction still will not apply to the rental, but to the business via schedule C.  In your case, it's worse, you can never deduct interest used to fund a tax free bond, or to invest in such a tax favored product.  Putting the facts aside, I often use the line ""don't let the tax tail wag the investing dog."" Borrowing in order to reduce taxes is rarely a wise move. If you look at the interest on the 90K vs 290K, you'll see you are paying, in effect, 5.12% on the extra 200K, due the higher rate on the entire sum. Elsewhere on this board, there are members who would say that given the choice to invest or pay off a 4% mortgage, paying it off is guaranteed, and the wiser thing to do. I think there's a fine line and might not be so quick to pay that loan off, an after-tax 3% cost of borrowing is barely higher than inflation. But to borrow at over 5% to invest in an annuity product whose terms you didn't disclose, does seem right to me. Borrow to invest in the next property? That's another story." I'm a Finance major in Finland and here is how it would go here. As you loan money to the company, the company has no income, but gains an asset and a liability. When the company then uses the money to pay the bills it does have expenses that accumulate to the end of the accounting period where they have to be declared. These expenses are payed from the asset gained and has no effect to the liability. When the company then makes a profit it is taxable. How ever this taxable profit may be deducted from from a tax reserve accumulated over the last loss periods up to ten years. When the company then pays the loan back it is divided in principal and interest. The principal payment is a deduction in the company's liabilities and has no tax effect. The interest payment the again does have effect in taxes in the way of decreasing them. On your personal side giving loan has no effect. Getting the principal back has no effect. Getting interest for the loan is taxable income. When there are documents signifying the giving the loan and accounting it over the years, there should be no problem paying it back. The biggest factor is: Are you really going to invest the difference? It is easy to say you will now, but unless you have a ton of discipline or some form of automatic investing, that is a hard thing to do in practice. Another consideration is that the 30 year loan will usually cost you more over the life of the loan because of the length of it.  Another option is to take the 30 year loan and pay at the rate you would with a 15. Then you get the benefit of paying it down quickly, but have the flexibility to only make smaller than usual payments in any month where you have a financial emergency and need the extra cash. "(credits to Joe's answer above which alluded to what I was not considering) You aren't ""bypassing"" the tax liability if you invest in a home instead of, say, stocks. It's true stocks would be subject to tax during the year you cash in on them while the proceeds of a home equity loan would not affect your tax liability. HOWEVER, by taking on a new loan, you are liable for repayments. Those repayments would be made using your income from other sources, which IS taxable. So you can't avoid tax liability when financing your child's college education by using an equity line." In 2015 there's a $5.43M (That's million, as in 6 zeros) estate exemption. Even though it's $14K per year with no paperwork required, if you go over this, a bit of paperwork will let you tap your lifetime exemption. There's no tax consequence from this.  The Applicable Federal Rate is the minimum rate that must be charged for this to be considered a loan and not a gift. DJ's answer is correct, otherwise, and is worth knowing as there are circumstances where the strategy is applicable. If the OP were a high net worth client trying to save his estate tax exemption, this (Dj's) strategy works just fine. The IRS' primary reference Pub 519 Tax Guide for Aliens -- current year online (current and previous years downloadable in PDF from the Forms&Pubs section of the website) says NO: Students and business apprentices from India.   A special rule applies .... You can claim the standard deduction .... Use Worksheet 5-1 to figure your standard deduction. If you are married and your spouse files a return and itemizes deductions, you cannot take the standard deduction. Note the last sentence, which is clearly an exception to the 'India rule', which is already an exception to the general rule that nonresident filers never get the standard deduction. Of course this is the IRS' interpretation of the law (which is defined to include ratified treaties); if you think they are wrong, you could claim the deduction anyway and when they assess the additional tax (and demand payment) take it to US Tax Court -- but I suspect the legal fees will cost you more than the marginal tax on $6300, even under Tax Court's simplified procedures for small cases. Talk to a tax professional. The IRS really doesn't like the deduction, and it's a concept (like independent contractors) that is often not done properly. You need to, at a minimum, have records, including timestamped photographs, proving that: Remember, documentation is key, and must be filed and accessible for a number of years. Poor record keeping will cost you dearly, and the cost of keeping those records is something that you need to weigh against the benefit. You cannot deduct. Even if you could, unless you also hold the mortgage, it's unlikely that you would have sufficient deductions to exceed the standard deduction for a married couple.