The interest on most types of personal loans, including the interest on your credit cards, is not tax-deductible, but there are exceptions. If you itemize your deductions you can write off the interest on your home mortgage loan for your main home and for a second home. If you meet the Internal Revenue Service's very specific requirements you might be able to write off credit card interest for making improvements to your home, but that's a big "if."
Home Mortgage Interest
Before you can deduct the interest on home improvements you paid for with your credit card, you must determine the kind of account to which the credit card is attached. You can deduct the interest on first or second mortgage loans, home improvement loans or home equity loans. To qualify, the loan must be secured by your main home or your second home. For example, if you are approved for a home equity line of credit with your bank, using your home as collateral for the loan, you might receive a credit card that you can use to access your available credit line. The interest on this credit card is tax-deductible because the loan qualifies as a mortgage loan.
If you use a general purpose credit card to purchase supplies or to pay workers for a home improvement project, neither the cost of the home improvement project nor the interest you pay on your credit card is tax-deductible. As of the 2012 tax year there is no tax deduction for personal home improvements regardless of how you pay for them. Only the interest on a loan secured by your home is tax-deductible, and since your general purpose credit card is not secured by your home, the interest on the debt is not tax-deductible.
Home Cost Basis
While you can't deduct the cost of your home improvement project when you file your federal income tax return, you might still get some tax benefit. You just have to be patient to take advantage of it. You can add the cost of making improvements to your home's cost basis. This will reduce the amount of any taxable capital gain you might incur if you sell your home at a profit sometime in the future.
Business interest falls under a different set of rules. If you use your home for business purposes you can deduct the proportionate amount of such expenses as maintenance, improvements and repairs, including credit card interest used to pay for those business-related expenses. Use discretion when claiming this deduction. The Kiplinger's website notes that claiming a deduction for business use of your home can raise a red flag with the IRS, making your return more likely to be audited.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.