Some interest payments are not deductible. Certain expenses similar to interest also are not deductible. Nondeductible expenses include the following items.

• Personal interest (discussed later).
• Service charges (however, see Other Expenses in chapter 30).
• Annual fees for credit cards.
• Loan fees.
• Credit investigation fees.
• FHA mortgage insurance premiums and VA funding fees.
• Interest to purchase or carry tax-exempt securities.

Penalties. You cannot deduct fines and penalties for violations of law, regardless of their nature.

Personal Interest

Personal interest is not deductible. Personal interest is any interest that is not home mortgage interest, investment interest, or business interest. It includes the following items.

• Interest on car loans (unless you are self-employed and use the car in your business).
• Interest on federal, state or local income tax.
• Finance charges on credit cards, retail installment contracts, and revolving charge accounts.
• Late payment charges by a public utility.

For payments due and paid after 1997, you may be able to deduct interest you pay on a qualified student loan. For details, see the instructions for line 24 of Form 1040 or line 16 of Form 1040A.

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