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2 min 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. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain confidence to take control of their finances through providing precise, well-studied and well-researched data that breaks down otherwise complicated subjects into digestible pieces. The Bankrate promise
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Car loan interest can be deducted in certain situations in which you make use of your vehicle for business use.
When you can take deductions for car loan interest from your tax bill Only individuals who are self-employed, or who own an enterprise and have the right to claim a tax deduction for the car loan interest. If you are an employee of a different business, you cannot claim this deduction. In addition, interest paid on a loan that is used to purchase a car to use for personal reasons is not tax-deductible. If the vehicle is used for personal and professional requirements, the process of claiming this tax deduction can be a bit more difficult. You must determine how much time the vehicle is being used for business needs versus personal requirements and then apply that figure on the loan interest deduction that you claim on your tax returns. For instance, if you use the vehicle for 50 percent of the time to fulfill business needs then you are able to claim only 50 percent of the loan interest on your tax returns. If you have to pay $1,000 interest on your car loan annually, you can only claim a $500 deduction. If you, however, the car is used entirely for business purposes, then the full amount of interest could be written off. Documentation to be kept When you file any kind on your tax returns, it’s best to keep detailed records and supporting documentation. You’ll need to verify all expenses should there be any questions or audits arise. A few records you should keep for the purposes of claiming your auto loan credit on tax returns include an account or log of all trips taken by the vehicle for business purposes, including an odometer log mileage. Car loan payment records verifying the amount of interest you paid. While you aren’t able to write off parking or tolls in the context of the automobile loan expense, it is possible that you may also be required to keep these kinds of receipts in order to prove your vehicle is used solely for commercial reasons. Bankrate tip
Maintain supporting documents for at least 3 years from the time you file the tax return.
If you’re not sure, consult an expert consult a professional if: You’re uncertain about whether you’re eligible for the car loan interest deduction You’re unsure about the best method to determine the precise amount of the deduction to be claimed on your tax returns A can help guide you through the process and decide if the deduction is suitable in your particular circumstances. For instance, when you use the vehicle for personal or business purposes, it might not be appropriate to claim the deduction for auto loan interest deduction if business-related usage of the vehicle is not that significant. Bankrate tip
This deduction could require 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 from your tax returns could be a valuable write-off if you’re either self-employed or self-employed. Before you can claim this deduction, you must be certain you’re eligible. Talk to a tax expert in case you’re not sure how to calculate the exact amount you could 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 editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to take control of their finances with clear, well-researched facts that break down complicated topics into digestible pieces.
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