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2 minutes 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 writing and editing for Bankrate since the beginning of 2021. They are committed to helping readers gain confidence to take control of their finances with precise, well-studied and well-researched data that reduces complicated topics into bite-sized pieces. The Bankrate guarantee
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Car loan interest can be deducted in certain instances when you are using your car for business use.
If you are able to deduct the cost of a car loan interest from taxes Only those who are self-employed, or who own an enterprise and have the right to claim a tax deduction for automobile loan interest. If you are an employee of a different business, you can’t claim this deduction. Furthermore, the interest on a loan to purchase a car for personal use isn’t deductible. If the vehicle in question is used for both business and personal needs, claiming this tax deduction becomes a little more complex. You need to determine how much time the vehicle is used for personal needs , and apply that number on what you claim as the loan interest deduction that you claim on tax returns. For instance, if you use your vehicle 50 percent of the time to fulfill business needs, you can only deduct 50 percent of the loan interest on your tax returns. If you pay $1,000 in interest on your car loan annually, you can only claim a deduction of $500. If however the car is being solely used for business, then the full amount of interest could be written off. Documentation to keep When of any kind of tax returns, you should be sure to keep accurate files and supporting documents. It is important to be able to check all expenses should there be any questions or an audit ever arise. A few records you should keep in order to claim your deduction for auto loan the interest on your tax return include: A log or record of all trips taken within the vehicle used for business use, which includes a log of the odometer mileage. The car loan payment records verifying the amount of interest that was paid. Though you cannot take the tolls or parking fees in the context of the automobile loan tax deduction for interest, you may also want to keep these types of receipts if they help prove your vehicle is used solely for commercial use. Bankrate tip
Maintain supporting documents for a minimum of three years after the date you file the tax return.
If you’re uncertain, you can hire a professional It’s best to talk to a professional if Aren’t sure if 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 get on your tax returns A can help you navigate the process and determine whether this deduction is appropriate for your unique circumstances. For instance, if you are using the vehicle for business and personal purposes, it might not be a good idea to claim the car loan interest deduction if business-related use of the vehicle isn’t that important. Bankrate’s tip
The deduction you claim could be more effort than it is worth if you are using the vehicle to conduct business less than 50 percent per month.
The bottom line: Deducting car loan interest on tax returns could be a valuable write-off if you’re self-employed or a freelancer. But before you claim this deduction, you must be certain you’re eligible. Consult a tax professional If you’re unsure of how to calculate 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. 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 enthusiastic about helping readers gain confidence to control their finances through providing clear, well-researched information that breaks down complicated topics into digestible pieces.
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