Ruling 1803 — The One-Fifth Tax (Khums)

If a person does not make a profit at the end of a year and borrows money to meet his living expenses, he cannot deduct the borrowed amount from the profit made by him in future years and thereby not pay khums on the profit. However, if he borrows money to pay for [something that is a necessary or reasonable expense], such as a car or a house for his personal use, then while he owes money for the purchase of that item and is using it, he can deduct the borrowed amount from his income in future years provided he has not already deducted that borrowed amount from his income in previous years. If he borrows money during the year to meet his living expenses and makes a profit before the year’s end, he can deduct the borrowed amount from his profit. Furthermore, in the first case, he can repay the borrowed amount from the income he receives in future years and that amount will not be liable for khums.[7]