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2 min 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. Edited 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 the confidence to manage their finances through providing precise, well-studied and well-researched data that breaks down complex topics into manageable bites. The Bankrate guarantee
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Car loan interest can be deducted in certain situations when you are using your car to conduct business.
You can claim deductions for interest on a car loan interest from your tax bill Only those who are self-employed or have business for purposes can claim a tax deduction for the car loan interest. If you are an employee of another's business, you can't claim this deduction. In addition, interest paid on the loan used to purchase a car solely to use for personal reasons is not deductable. If the vehicle is used for business and personal needs, claiming this tax deduction can be a bit more difficult. You need to determine how much time the vehicle is used for business needs versus personal requirements and then apply that figure on what you claim as the loan interest deduction that you claim on tax returns. If, for instance, you use your vehicle for 50 percent of the time to fulfill business needs it is only possible to deduct 50 percent of the loan interest on tax returns. If you have to pay $1,000 interest on your vehicle loan each year, you can only claim a $500 deduction. If however the car is being exclusively for business use, then the full amount of the interest may be deducted. Documentation to keep When of any kind of tax returns, you should be sure to keep accurate files and supporting documents. You want the ability to confirm all expenses should there be any questions or audits arise. Some records to maintain for the purposes of claiming the deduction for auto loan interest deduction on your tax return are the following: A record or log of every trip you take by the vehicle to work, and a log of the odometer mileage. The car loan repayment records that confirm the amount of interest you paid. Although you can't claim tolls or parking as part of your automobile loan tax deduction for interest, you might be required to keep these kinds of receipts if they support your claim your vehicle is used solely for commercial reasons. Bankrate tip
Documentation supporting your tax return should be kept for at least 3 years after the date when you file your tax return.
If you're not sure, consult an expert talk to 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 deduction to claim on your tax filing A professional can you navigate the process and decide if the deduction is suitable for your unique situation. For instance, when you use the vehicle for personal or business use, it may not make sense to take advantage of the auto loan interest deduction if the business usage of the vehicle is minimal. Bankrate's tip
The deduction you claim could be more work than it's worth if you are using the vehicle for business less than 50 percent per month.
Bottom line Deducting car loan interest on your tax returns can be a valuable write-off if you're either self-employed or self-employed. However, before you can claim this deduction, you must be sure that you are eligible. Consult a tax professional in case you're not sure how to determine the exact amount you'll 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. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to manage their finances with concise, well-researched, and clear facts that break down otherwise complex topics into manageable bites.
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