Personal Loans and Taxes: Understanding the Facts and Technicalities

People opt for personal loans whenever in need of extra cash. There is nothing wrong with that, as life is full of surprises, most often involving money—people will always need to find alternatives just to make ends meet.

When it comes to personal loans, however, the amount they can borrow will all depend on their credit score and past debts. If they happen to have a clean record without any sign of unpaid debts and penalties, their chances of receiving a good amount rapidly go up. On the other hand, if their records are all about late payments and fines, then there’s a chance for them to get a limited amount, or worse, an upfront rejection.

With all of that said, people who’ve just received their loans tend to wonder whether or not the cash amount is taxable. This is a tricky topic for many, especially those who do not want to get on the IRS’s wrong side.

If you are one of them and would like to learn more about this, feel free to read up on the following tidbits.

Will You Be Required to Pay Income Taxes on Personal Loans?

The definite answer to this would be yes and no. The answer is yes if the lender decides to forgive a part of the loan, requiring you to include that in the taxable income amount. It may also be taxable if you were to pay way less than the amount you owe. You could only come up with an incomplete payment.

On the other hand, you have no tax to worry about if you were to repay the whole loan in full. Good payers are more advantaged than those who cannot repay in total, so do your best to gather the appropriate amount so that you will never have to include it in your taxable income.

Technically, Can Personal Loans Be Treated as Taxable Income?

To clarify, personal loans aren’t something you worked hard to attain. They are not your salary, and neither are they a part of your business’s profit. In that case, they are not generally taxable.

This is true, even if a family member gave the loan itself, but do keep in mind that they may need to file an IRS Form 709, especially if the amount is more than the gift tax exclusion for the year, which is around $15,000.

The Need for an Expert Advice

Understandably, it may all be overwhelming to take in, especially if you are not well-versed with the numbers. The average person may need the help or advice of tax professionals to familiarize themselves with the different rules and regulations that may affect their loans and taxes. They will also have to learn the necessary technicalities regarding their taxables.


Personal loans aren’t generally taxable, as long as you will pay them in full. It isn’t a part of your earnings, and neither is it a part of your profit, which is why there is no need for it to be declared as income taxable. However, there are still a couple of ordinances that may affect this rule. To avoid getting hit by technicalities, be sure to consult a tax expert that will help you understand the different regulations about your loans.

If you’re looking for a trustworthy lender offering ,personal loans, look no further than Mid-Town Finance Company Huntsville. We have served the greater Huntsville area since our establishment in the 2000s, and our business makes straightforward, fair, and honest loans.

Call to inquire about your personal loan today!