Is car loan interest tax deductible? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial choices by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct your own research and compare information for free to help you make sound financial decisions. Bankrate has partnerships with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that appear on this site are from companies that compensate us. This compensation can affect the way and where products appear on this website, for example such things as the sequence in which they be listed within the categories of listing in the event that they are not permitted by law. Our mortgage or home equity products, as well as other products for home loans. But this compensation does have no impact on the content we publish or the reviews you see on this site. We do not include the vast array of companies or financial offers that may be accessible to you. SHARE Luis Alvarez/Getty Images
2 min read 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. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to manage their finances with clear, well-researched information that reduces complicated subjects into digestible pieces. The Bankrate guarantee
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Car loan interest is deductible in certain circumstances where you use your vehicle for business use.
When you can deduct car loan interest from taxes Only those who are self-employed, or who own business for purposes can be eligible for a tax deduction on 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 an loan used to purchase a car solely to use for personal reasons is not deductible. If the vehicle in question is used for both personal and business needs, claiming this tax deduction is slightly more complex. It is necessary to calculate how much time the vehicle is driven for personal requirements and then apply that figure to what you claim as the loan interest deduction that you claim on your tax returns. If, for instance, you use your vehicle for 50 percent to fulfill business needs it is only possible to deduct 50 percent of the loan interest on tax returns. If you have to pay $1,000 interest on your car loan annually, you can only claim a $500 deduction. If, on the other hand the vehicle is solely used for business that is, then the whole amount of interest can be deducted. Documentation to be kept When you file any kind of tax returns, it’s best to keep meticulous records and supporting documentation. You want the ability to check all expenses should questions or audits ever occur. Some records to maintain for the purposes of claiming the tax deduction of the auto loan interest deduction on your tax returns include an account or log of all the trips you make within the vehicle used for business use, which includes a log of the odometer mileage. The car loan payments records that verify the amount of interest that was paid. Though you cannot claim tolls or parking as part of the car loan interest deduction, you may also need to keep these types of receipts if they help support your claim it was used to conduct business reasons. Bankrate tip
Keep supporting documentation for a minimum of three years from the date the tax return is filed.
If you’re not sure, consult a professional It’s best to consult a professional if: You’re uncertain about whether you qualify for the car loan interest deduction. You’re not sure of how to calculate the exact amount of the deduction that should claim on your tax filing A professional can guide you through the procedure and help you determine if the deduction is suitable for your unique situation. For instance, when you are using the car for both personal and business uses, it may not be a good idea to claim deduction for auto loan interest deduction if the business use of the vehicle is minimal. Bankrate’s tip
Claiming this deduction may be more effort than it is worth if you are using the vehicle for business less than 50% of the time.
Bottom line Deducting car loan interest from your tax returns can be beneficial if you’re self-employed or a freelancer. Before you can claim this deduction, you must be sure you qualify. Talk to a tax expert in case you’re not sure how to determine the exact amount you’ll 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. Edited 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 control their finances through providing precise, well-researched and well-written facts that break down complex topics into manageable bites.
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