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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 late 2021. They are passionate about helping readers gain confidence to take control of their finances with clear, well-researched information that reduces complex topics into manageable bites. The Bankrate promise
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Car loan interest can be deducted in certain instances where you use your vehicle for business purposes.
You can claim deductions for the cost of a car loan interest from taxes Only individuals who are self-employed or own business for purposes can claim a tax deduction for the car loan interest. If you’re an employee of someone else’s business, you cannot claim this deduction. Additionally, the interest you pay on a loan that is used to purchase a vehicle solely for personal use isn’t deductable. If the car in question is used for personal and business requirements, the process of claiming this tax deduction becomes a little more complex. It is necessary to calculate the amount of time that the vehicle is used for personal requirements and then apply that figure to the loan interest deduction being claimed on tax returns. If, for instance, you use your vehicle 50 percent for business reasons, you can only deduct 50 percent of the loan interest on tax returns. If you pay $1,000 in interest on your car loan annually, you can only claim a $500 deduction. If you, however the car is being solely used for business, then the full amount of interest can be deducted. Documentation to be kept When you file any kind on your tax returns, it is best to keep meticulous records and supporting documentation. You’ll need to verify the expenses in case questions or audits arise. Some records to maintain for the purposes of claiming the tax deduction of the auto loan credit on tax returns include: A log or record of all the trips you make within the vehicle used for business use, which includes an odometer log mileage. The car loan payment records verifying the amount of interest you paid. While you aren’t able to take the tolls or parking fees as part of your auto loan tax deduction for interest, you might need to keep these types of receipts in order to in proving it was used to conduct business use. Bankrate tip
Keep supporting documentation for at least three years after the date you file the tax return.
If you’re uncertain, you can hire an expert talk to a professional if There’s a question about whether you qualify for the car loan interest deduction You’re unsure of how to calculate the exact amount of deduction to get on your tax return A professional can guide you through the process and decide if this deduction is appropriate depending on your specific situation. For instance, when you use your vehicle for personal or business purposes, it might not be a good idea to use deduction for auto loan interest deduction if the business usage of the vehicle is minimal. Bankrate tip
The deduction you claim could be more effort than it is worth if you use the vehicle to conduct business less than 50% of the time.
The bottom line: Deducting car loan interest on tax returns could be a valuable write-off if you’re a or you’re self-employed. But before you claim this deduction, be sure you qualify. Work with a tax professional if you’re uncertain about how to determine the exact amount you’ll be able to claim.
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 late 2021. They are enthusiastic about helping readers gain confidence to take control of their finances with clear, well-researched facts that break down complicated subjects into bite-sized pieces.
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