Specify a Business Hard Money Loan for Tax Benefits

Tax forms and calculator for hard money loan in Houston

If you are an experienced real estate investor looking to maximize the potential return on your investments, you may have already considered financing your deal with hard money loans. But did you know that if your hard money loan is categorized for “business” versus “investment” or “personal”, the interest payments are tax deductible? That’s right—using a hard money loan could help lower your overall investment costs and put more of your profits back into growing your business. 

Today, we will discuss leveraging these tax deduction opportunities so you can get the maximum benefit. To discuss a hard money loan in Houston for you, contact our team directly. 

Interest is Tax Deductible for Hard Money Loans Used for Business Purposes

When it comes to taxes, deducting the interest you pay on loans can be a significant benefit. However, not all interest is tax deductible, especially when it comes to traditional personal loans from a bank. 

The good news is that the interest from a hard money loan in Houston is tax deductible if the loan is used for a business expense. If the loan is used to purchase an investment property, the interest can be deducted as a business expense, especially if you obtain the loan through your LLC or corporation. 

Hard money loans are typically short-term, high-interest loans secured by your real estate asset. They can be a valuable tool for real estate investors looking to flip properties or take advantage of time-sensitive opportunities. When you count the advantage of being able to deduct the high interest rate on your business taxes, hard money loans can provide more overall benefit than initially expected.

What is Considered an “Investment” or “Business” Use of Funds for Tax Purposes

Tax forms and calculator for hard money loan in Houston
A hard money loan in Houston used for business purposes through your LLC or corporation benefits you during tax season.

When it comes to tax purposes, understanding what counts as an investment or business use of funds can be crucial for financial planning and optimization. The IRS has specific guidelines for determining what falls into the category of investment versus a business expense. Generally, the IRS considers expenses for investment use as not being deductible, and expenses for business use to be deductible. Other factors such as type of entity (LLC vs Corporation) can also determine the deductibility of interests regarding taxes. Therefore, it is always wise to consult a financial professional before making any major financial decisions.

When it comes to hard money loans, interest deductions play a critical role in determining the overall cost to borrowers. Essentially, they reduce the amount of tax owed on the interest paid on these loans. 

There are two types of deductions available for business expenses: above-the-line deductions and itemized deductions. The former reduces taxable income by the total interest paid during the tax year, while itemized deductions require more paperwork but can result in a higher deduction. Knowing the difference between the two can save borrowers big money come tax season. 

Houston Hard Money Loans from Texas Funding

Hard money loans are a viable alternative to traditional financing for real estate projects. Working with Texas Funding, borrowers can take advantage of quicker funding and fewer regulations. Feel confident when taking out a hard money loan with us. Contact us now about your project and let us help you fund it as quickly as possible so that you can start building your business today.