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After-tax Cost of Debt

Calculate after-tax cost of debt for financial analysis.

After-tax Cost of Debt Calculator

Debt & Tax Information

Please enter a valid interest rate

Tax rate must be between 0% and 99.99%

Used for calculating example interest payments

Tax Deductibility

✅ Business debt interest is typically tax deductible

✅ Mortgage interest is deductible up to certain limits

✅ Investment debt interest may be deductible

❌ Personal debt interest is generally not tax deductible

Consult a tax professional for specific situations

Cost Analysis

Pre-tax Cost of Debt

After-tax Cost of Debt

After-tax Cost of Debt

Same as pre-tax (not deductible)

Tax Shield Value:
Interest Rate Reduction:
Effective Tax Rate:

Annual Interest Example

Debt Amount:
Annual Interest (Pre-tax):
Tax Savings:
Net Interest Cost:

Formula

After-tax Cost = Pre-tax Rate × (1 - Tax Rate)

Example: × (1 - ) =

Since this debt type is not tax deductible, the after-tax cost equals the pre-tax cost.

Tax Rate Comparison

Tax Rate After-tax Cost Savings

Understanding After-tax Cost of Debt

What is After-tax Cost of Debt?

The after-tax cost of debt represents the true cost of borrowing after considering tax benefits from deductible interest payments.

When interest is tax deductible, the government effectively subsidizes part of your borrowing cost through tax savings.

This is crucial for business decisions, investment analysis, and comparing financing options.

When to Use This Calculator

  • • Evaluating business loan costs
  • • Comparing debt vs equity financing
  • • Investment property analysis
  • • Corporate financial planning
  • • Tax planning strategies
  • • WACC (Weighted Average Cost of Capital) calculations

Tax Deductible Debt Types

  • • Business loans and lines of credit
  • • Mortgage interest (primary residence)
  • • Investment property mortgages
  • • Margin loans for investments
  • • Equipment financing

Non-Deductible Debt Types

  • • Personal credit cards
  • • Personal loans
  • • Auto loans (personal use)
  • • Student loans (limited deduction)
  • • Home equity loans (limited cases)

⚠️ Important Considerations

  • • Tax laws vary by jurisdiction and change over time
  • • Deductibility may have limits or phase-outs
  • • Alternative Minimum Tax (AMT) may affect deductions
  • • State taxes may have different rules
  • • Always consult a tax professional for specific situations
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