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2 minutes read. Published March 08, 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 editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to take control of their finances by providing concise, well-studied information that breaks down complicated subjects into digestible pieces. The Bankrate guarantee
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Car loan interest is deductible in certain instances when you are using your car for business use.
If you are able to take deductions for interest on a car loan interest from your taxes Only those who are self-employed or own business for purposes can take advantage of a tax deduction for the car loan interest. If you are an employee of another’s company, you are not eligible for this deduction. In addition, interest paid on the loan to purchase a vehicle solely for personal use is not tax-deductible. If the vehicle is used for both personal and professional needs, claiming this tax deduction is slightly more complicated. It is necessary to calculate how much time the vehicle is being used for business needs versus personal needs and apply that calculation on the loan interest deduction being claimed on your tax returns. For example, if you use your vehicle for 50 percent for business reasons it is only possible to deduct 50 percent of the loan interest on your tax returns. If you pay $1,000 interest on your car loan each year, you can only claim a deduction of $500. If, on the other hand, the car is used entirely for business purposes and you are a business owner, the entire amount of interest can be written off. Documentation to document any kind of tax returns, it is best to keep detailed files and supporting documents. You want the ability to verify all expenses should there be any questions or audits ever occur. A few records you should keep for the purposes of claiming your auto loan interest deduction on your tax return are the following: A record or log of all trips taken within the vehicle used to work, and an odometer log mileage. Car loan payments records that verify the amount of interest that was paid. Although you can’t write off parking or tolls as part of the car loan interest deduction, you may also be required to keep these kinds of receipts if they support your claim it was used to conduct business purposes. Bankrate tip
Documentation supporting your tax return should be kept for at least three years from the date you file the tax return.
If you’re uncertain, you can hire a professional It’s best to consult a professional if: There’s a question about whether you qualify for the car loan interest deduction. You’re confused about how to properly determine the exact amount of deduction to claim on your tax returns A professional can assist you in the procedure and help you determine if the deduction makes sense for your unique circumstances. For instance, when you use the vehicle for business and personal use, it may not be a good idea to claim deduction for deduction for auto loan interest deduction when the business usage of the vehicle is not that significant. Bankrate tip
The deduction you claim could be more work than it’s worth if you are using the vehicle for business purposes less than 50 percent per month.
Bottom line Deducting car loan interest on your tax returns is beneficial if you’re self-employed or a freelancer. Before you can claim this deduction, be sure that you are eligible. Consult a tax professional in case you’re not sure how to calculate 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. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are enthusiastic about helping readers gain the confidence to manage their finances by providing concise, well-researched, and clear information that breaks down otherwise complicated topics into digestible pieces.
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