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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 editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to control their finances through providing precise, well-studied and well-researched data 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 where you use your vehicle for business purposes.
If you are able to claim deductions for the cost of a car loan interest from your taxes Only individuals who are self-employed, or who own a business and purposes may take advantage of a tax deduction for automobile loan interest. If you are an employee of someone else's business, you can't claim this deduction. Additionally, the interest you pay on a loan to purchase a car for personal use is not tax-deductible. If the car in question is used for both personal and business needs, claiming this tax deduction becomes a little more complex. You need to determine the amount of time that the vehicle is used for personal needs , and apply that number to your loan interest deduction being claimed on your tax returns. For example, if you drive the vehicle for 50 percent for business reasons then you are able to claim only 50 percent of the loan interest on your tax returns. If you pay $1,000 interest on your car loan annually, you can only claim a $500 deduction. If, on the other hand the car is being exclusively for business use and you are a business owner, the entire amount of interest could be deducted. Documentation to be kept When you file any type of tax returns, it's best to keep detailed documents and records. It is important to be able to check all expenses should questions or audits ever occur. A few records you should keep in order to claim your tax deduction of the auto loan the interest on your tax return include the following: A record or log of all trips taken by the vehicle to work, and a log of the odometer mileage. The car loan payments records that verify the amount of interest you paid. Though you cannot take the tolls or parking fees as part of your car loan tax deduction for interest, you may also be required to keep these kinds of receipts in order to prove it was used to conduct business purposes. Bankrate tip
Keep supporting documentation for at least 3 years from the date when you file your tax return.
If you're uncertain, you can hire an expert seek out a professional when: You're uncertain about whether you're eligible for the auto loan interest deduction You're unsure about how to properly calculate the exact amount of deduction to be claimed on your tax filing A professional can you navigate the process and decide if this deduction is appropriate in your particular situation. For example, if you use your vehicle for business and personal purposes, it might not be appropriate to take advantage of deduction for deduction for auto loan interest deduction when the business usage of the vehicle is not that significant. Bankrate tip
Claiming this deduction may be more effort than it is worth if you only use the vehicle for business less than 50% per month.
Bottom line Deducting car loan interest on your tax returns could be an excellent write-off for you if a or you're self-employed. However, before you can take advantage of this deduction, make sure that you are eligible. Work with a tax professional If you're unsure of how to determine the exact amount you may 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. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to manage their finances through providing clear, well-researched details that cut otherwise complex topics into manageable bites.
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