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2 minutes read. Published on March 8, 2023.
Written by Mia Taylor Written by Contributing Writer Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation’s leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to manage their finances through providing clear, well-researched information that reduces complicated topics into bite-sized pieces. The Bankrate promise
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Car loan interest is tax deductible in certain circumstances where you use your vehicle for business purposes.
If you are able to take deductions for the cost of a car loan interest from your taxes Only those who are self-employed or have an enterprise and have the right to be eligible for a tax deduction on car loan interest. If you’re an employee of another’s business, you can’t claim this deduction. Furthermore, the interest on a loan used to purchase a car solely to use for personal reasons is not tax-deductible. If the vehicle in question is used for personal and professional needs, claiming this tax deduction becomes a little more complex. You need to determine the amount of time that the vehicle is being used for personal requirements and then apply that figure on the loan interest deduction being claimed on your tax returns. For example, if you drive the vehicle for 50 percent of the time for business reasons then you are able to claim only 50 percent of the loan interest on tax returns. If you pay $1,000 in interest on your car loan every year, you are able to only claim a $500 deduction. If, on the other hand the vehicle is solely used for business, then the full amount of interest could be deducted. Documentation to be kept When you file any kind of tax returns, you should be sure to keep meticulous files and supporting documents. You’ll need to verify all expenses should there be any questions or an audit ever arise. A few records you should keep when claiming your auto loan credit on tax returns include an account or log of all the trips you make in the vehicle to work, and an odometer log mileage. The car loan repayment records that confirm the amount of interest that was paid. Though you cannot take the tolls or parking fees as part of the auto loan interest deduction, you might be required to keep these kinds of receipts if they in proving that the vehicle was used for business reasons. Bankrate tip
Maintain supporting documents for at least 3 years from the time when you file your tax return.
If you’re uncertain, you can hire a professional It’s best to talk to a professional if You’re uncertain about whether you’re eligible for the auto loan interest deduction. You’re confused about how to properly determine the precise amount of the deduction that should be claimed on your tax filing A professional can assist you in the process and decide if the deduction is suitable in your particular situation. For instance, if you use the vehicle for personal or business use, it may not be a good idea to use deduction for deduction for auto loan interest deduction if business-related use of the vehicle is minimal. Bankrate tip
Claiming this deduction may be more work than it’s worth if you are using the vehicle to conduct business less than 50 percent per month.
Bottom line Deducting car loan interest on tax returns is an excellent write-off for you if a or you’re self-employed. But before you claim this deduction, be sure you qualify. Work with a tax professional If you’re unsure of how to determine the exact amount you may be able to claim.
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Written by Contributing Writer Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation’s leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to control their finances by providing precise, well-researched and well-written facts that break down complex topics into manageable bites.
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