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9: 111 In general, interest paid in connection with the borrower's' business activity is deductible, while interest paid on personal loans are not deductible. 9: 111 The major exception here is interest paid on a home mortgage. Income from discharge of indebtedness edit. Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness. 9: 111 12 Thus, if a debt is discharged, then the borrower essentially has received income equal to the amount of the indebtedness. The Internal Revenue Code lists Income" from Discharge of Indebtedness" in Section 61a12 as a source of gross income. Example: X owes Y 50000. If Y discharges the indebtedness, then X no longer owes Y 50000. For purposes of calculating income, this is treated the same way as if Y gave X 50000.
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