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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. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the beginning of 2021. They are committed to helping readers gain confidence to control their finances with concise, well-studied information that breaks down complex topics into manageable bites. The Bankrate promise
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Car loan interest is tax deductible in certain situations in which you make use of your vehicle for business use.
If you are able to take deductions for interest on a car loan interest from your tax bill Only individuals who are self-employed or own a business and purposes may be eligible for a tax deduction on the car loan interest. If you are an employee of another's company, you are not eligible for this deduction. Furthermore, the interest on the loan used to purchase a vehicle solely for personal use isn't tax-deductible. If the vehicle is used for both business and personal requirements, the process of claiming this tax deduction is slightly more complex. It is necessary to calculate the percentage of time the vehicle is driven for personal needs , and apply that number on the loan interest deduction being claimed on tax returns. If, for instance, you use the vehicle for 50 percent of the time for business purposes it is only possible to deduct 50 percent of the loan interest on your tax returns. If you pay $1,000 in interest on your car loan every year, you are able to only claim a deduction of $500. If, on the other hand, the car is exclusively for business use, then the full amount of interest could be written off. Documentation to document any kind on your tax returns, you should be sure to keep meticulous files and supporting documents. You want the ability to confirm all expenses should there be any questions or audits arise. A few records you should keep in order to claim the deduction for auto loan interest deduction on your tax return include the following: A record or log of every trip you take in the vehicle for business purposes, including an odometer log mileage. The car loan payments records that verify the amount of interest that was paid. Although you can't write off parking or tolls in the context of the car loan expense, it is possible that you might be required to keep these kinds of receipts if they help prove that the vehicle was used for business purposes. Bankrate tip
Keep supporting documentation for at least 3 years from the date the tax return is filed.
If you're not sure, consult a professional It's best to seek out a professional when: There's a question about whether you qualify for the car loan interest deduction. You're confused about the best method to determine the exact amount of the deduction to get on your tax returns A can help you navigate the procedure and help you determine if the deduction is suitable depending on your specific circumstances. For example, if you are using the vehicle for personal or business use, it may not be appropriate to claim an 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 only use the vehicle for business less than 50 percent per month.
The bottom line: Deducting car loan interest on your tax returns is an excellent write-off for you if either self-employed or self-employed. However, before you can claim this deduction, be sure that you are eligible. Work with a tax professional in case you're not sure how to determine the exact amount you may 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 from late 2021. They are dedicated to helping readers gain the confidence to control their finances through providing precise, well-researched and well-written information that breaks down otherwise complicated topics into digestible pieces.
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