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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 writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to manage their finances by providing clear, well-researched information that reduces complex topics into manageable bites. The Bankrate promises
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If you have questions about money. Bankrate can help. Our experts have been helping you master your finances for more than four decades. We strive to continuously provide our readers with the professional advice and tools needed to make it through life’s financial journey. Bankrate adheres to a strict code of conduct , so you can trust that our content is honest and precise. Our award-winning editors and journalists provide honest and trustworthy content to help you make the right financial choices. The content created by our editorial team is objective, truthful and uninfluenced through our sponsors. We’re transparent regarding how we’re able to bring quality content, competitive rates and useful tools to you , by describing how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We receive compensation for the promotion of sponsored goods or services, or through you clicking specific links on our website. Therefore, this compensation may affect the way, location and when the products are listed within categories, except where prohibited by law for our mortgage and home equity products, as well as other products for home loans. Other elements, like our own proprietary website rules and whether the product is offered in your region or within your personal credit score could also affect the way and place products are listed on this site. We strive to offer the most diverse selection of products, Bankrate does not include information about each credit or financial products or services. Owning a car that you use some or all of the time for business could provide tax benefits. Perhaps the most well-known benefit can be the mileage deduct, which is a amount set by the IRS which small-scale business owners as well as self-employed people can take advantage of to deduct some of the costs associated with running a car for business purposes. However, that’s not the only write-off available to those who own a car for business use. If you have a you could also be eligible to deduct the interest while filing Federal tax return. Are the costs of a car loan deductable?
Car loan interest is deductible in certain circumstances where you use your vehicle for business purposes.
You can take deductions for the cost of a car loan interest from your tax bill Only those who are self-employed, or who own a business and purposes may be eligible for a tax deduction on the car loan interest. If you’re an employee of someone else’s business, you can’t claim this deduction. In addition, interest paid on a loan that is used to purchase a car to use for personal reasons is not deductable. If the vehicle is used for both personal and professional needs, claiming this tax deduction becomes a little more difficult. It is necessary to calculate the amount of time that the vehicle is being used to meet business needs , and apply that number to what you claim as the loan interest deduction being claimed on your tax returns. For instance, if you use your vehicle 50 percent to fulfill business needs it is only possible to deduct 50 percent of loan interest on your tax returns. If you have to pay $1,000 interest on your car loan each year, you can only claim a deduction of $500. If you, however the car is being solely used for business, then the full amount of interest can be deducted. Documentation to keep When of any kind on your tax returns, you should be sure to keep detailed files and supporting documents. You’ll need to verify all expenses should questions or an audit ever arise. A few records you should keep when claiming your deduction for auto loan credit on tax returns include: A log or record of all trips taken by the vehicle for business use, which includes the log of the odometer mileage. Car loan repayment records that confirm the interest paid. Although you can’t take the tolls or parking fees in the context of the car loan tax deduction for interest, you might be required to keep these kinds of receipts if they help support your claim it was used to conduct business purposes. Bankrate tip
Documentation supporting your tax return should be kept for at least 3 years from the date you file the tax return.
If you’re not sure, consult an expert seek out a professional when: There’s a question about whether you’re eligible for the auto loan interest deduction You’re unsure about how to properly determine the exact amount of the deduction that should claim on your tax filing A professional can guide you through the procedure and help you determine if the deduction is suitable for your unique circumstances. For example, if you use the car for both personal and business uses, it may not be appropriate to use the car loan interest deduction if the business use of the vehicle is not that significant. Bankrate tip
Claiming this deduction may be more work than it’s worth if you use the vehicle for business less than 50% all the time.
Bottom line Deducting the car loan interest on your tax returns could be a valuable write-off if you’re either self-employed or self-employed. But before you claim this deduction, you must be certain you’re eligible. Work with a tax professional If you’re unsure of how to calculate the exact amount you may be eligible for.
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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 from late 2021. They are dedicated to helping readers gain the confidence to manage their finances with concise, well-researched, and clear information that breaks down complicated subjects into bite-sized pieces.
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