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I have an S corp that has personally guaranteed lines of credit. Since these are in the business name but have my name on them as well, can we deduct the interest when using them for cash flow purposes? |
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Generally, if debt from the credit line is used pay business expenses of the corporation, the interest is deductible on page one of Form 1120S. Your personal guarantee will not give you tax basis to deduct losses, but it does not affect the deductibility of the interest if it used in the business. There are complex “tracing rules” that govern how interest is deductible. This means that the debt is traced to how it is used (in the business, for investments, in a passive rental property and the related interest is takes on the same character as the debt. So it is important to identify how debt from the credit line is used and seek professional advice if you have questions. 2
Linda is right on target. I'd add that you can deduct the interest on the PART of the loan that was used for business and you have to be careful if you took out a loan to pay yourself a salary.
(03 Feb '10, 16:24)
EAgent
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Why not loan the company the money to deduct the interest? Set up valid loan documents with interest and repayment schedules. This gives you additional basis in the corporation and the deduction would flow through to you as an above the line deduction. If you pay the interest directly you run the risk of it being investment interest and deductible only to the extent of investment income. |
