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2 minutes read. Published 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 writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances with concise, well-studied information that breaks down otherwise complicated subjects into digestible pieces. The Bankrate promise
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Car loan interest is tax deductible in certain situations when you are using your car for business use.
When you can claim deductions for interest on a car loan interest from your taxes Only individuals who are self-employed, or who own business for purposes can take advantage of a tax deduction for automobile loan interest. If you are an employee of someone else's business, you cannot claim this deduction. Furthermore, the interest on the loan to purchase a car for personal use is not deductable. If the vehicle is used for personal and business requirements, then claiming the tax deduction can be a bit more difficult. You must determine the amount of time that the vehicle is being used for business needs versus personal needs and apply that calculation on what you claim as the loan interest deduction you are claiming on tax returns. For instance, if you use the vehicle 50 percent of the time to fulfill business needs then you are able to claim only 50 percent of loan interest on your tax returns. If you have to pay $1,000 interest on your car loan every year, you are able to only claim a deduction of $500. If however the vehicle is exclusively for business use, then the full amount of interest could be written off. Documentation to document any kind of tax returns, it is best to keep detailed records and supporting documentation. You want the ability to check all expenses should questions or audits arise. Some records to maintain in order to claim an auto loan the interest on your tax returns include the following: A record or log of all trips taken within the vehicle used to work, and the log of the odometer mileage. The car loan payments records that verify the amount of interest that was paid. Though you cannot take the tolls or parking fees in the context of the car loan interest deduction, you might need to keep these types of receipts if they prove that the vehicle was used for business use. Bankrate tip
Documentation supporting your tax return should be kept for at least 3 years from the time you file the tax return.
If you're not sure, consult a professional It's best to seek out a professional when: Aren't sure if you're eligible for the auto loan interest deduction. You're not sure about how to properly determine the exact amount of deduction to claim on your tax returns A can help you navigate the procedure and help you determine if this deduction is appropriate depending on your specific situation. For instance, if you use the vehicle for business and personal use, it may not be a good idea to claim deduction for auto loan interest deduction when the business usage of the vehicle isn't that important. Bankrate tip
The deduction you claim could be more effort than it is worth if you are using the vehicle for business less than 50 percent of the time.
Bottom line Deducting car loan interest from your tax returns can be a valuable write-off if you're either self-employed or self-employed. However, before you can take advantage of this deduction, make certain you're eligible. Talk to a tax expert in case you're not sure how to determine the exact amount you'll be eligible 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 editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances through providing precise, well-researched and well-written information that breaks down otherwise complicated topics into digestible pieces.
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