Pledged Asset Line - Interest Deduction

April 07, 2025

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Seattle, WA, USA

I am debating between an SBA 7a loan and a Pledged Asset Line (PAL) for a ~$550K EV acquisition and would appreciate CPA guidance (or at least someone that recently stayed at Holiday Inn Express).

The assets for the PAL will be from my stock portfolio in my personal account. The interest rate is ~6% (vs ~8.5% for SBA 7a) and requires that only the interest is paid monthly (unlike 7a that requires interest + principal). The PAl also doesn't have any fees unlike the new guidance for the SBA 7a (~3% guarantee fee). The question I have is whether I will be able to deduct the interest from the PAL from the NewCo LLC business income since the PAL is tied to my personal account. My math shows that there is a slight advantage to the SBA 7a if I can't deduct the interest from the PAL.

What, if anything, can I do to be able to deduct the interest for this PAL? The brokerage is unwilling to create the loan in the NewCo LLC and tie to my personal PAL. I also don't want to transfer stock to a newly created NewCo LLC brokerage account to take the PAL (will mess up the balance sheet). Could I create a loan from myself to the NewCo to match the PAL? If I am passed the standard deduction on my personal account, can I just deduct this interest from my personal taxes so it doesn't matter (business is a passthrough LLC)? In a perfect world, I would like NewCo balance sheet to have only this loan and the interest as an expense on the P&L....

Reply by a professional
from University of Massachusetts at Dartmouth in Tiverton, RI, USA

Generally speaking the tax perspective is that you could lend the proceeds of the PAL to the entity with the same terms as the PAL. The entity will take the deduction and pass to you, You will recognize interest income on your personal tax return and take a corresponding deduction since the proceeds of the loan are allocable to a business activity. Feel free to DM me if you would like any assistance.

Reply by a searcher
from University of Pennsylvania in Milwaukee, WI, USA

My understanding is that, in principle, you can deduct the interest given that it is being used to create taxable income (i.e., buy a business). I think you'll need to consult an accountant to figure out how to mechanically make it work but presumably the LLC being a pass through entity will facilitate this.

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