Interest on a loan for a closd business

[cathe]

My tax client closed out a business in 2011 that failed and is still paying on a loan from that business. Is the interest deductible in any way?

Cathe

[Roland Slugg]

Yes, as long as the loan or the assets acquired with the loan proceeds have not been converted to personal or some other use, the interest may continue to be deducted on Schedule C ... even though there is no longer any income being reported on that Schedule C. If the use of the assets bought with the debt proceeds changes, such as being converted to personal use or transferred to another business or investment, then the interest on the debt must be reallocated to the new use. (Regs §1.163-8T(j)(1))