Is car loan interest tax deductible? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial choices by providing you with financial calculators and interactive tools, publishing original and objective content, by enabling you to conduct research and compare data for free – so that you can make sound financial decisions. Bankrate has agreements with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website are provided by companies that pay us. This compensation can affect the way and where products appear on the site, such as, for example, the order in which they be listed within the categories of listing, except where prohibited by law. Our mortgage, home equity and other home loan products. This compensation, however, does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be accessible to you. SHARE Luis Alvarez/Getty images
2 min 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 editing and writing for Bankrate since the beginning of 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing concise, well-studied information that breaks down otherwise complex topics into manageable bites. The Bankrate promises
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Car loan interest can be deducted in certain circumstances where you use your vehicle to conduct business.
When you can take deductions for car loan interest from taxes Only individuals who are self-employed or have an enterprise and have the right to take advantage of a tax deduction for car loan interest. If you are an employee of a different company, you are not eligible for this deduction. In addition, interest paid on a loan used to purchase a car solely for personal use isn’t deductible. If the vehicle in question is used for personal and professional needs, claiming this tax deduction can be a bit more complicated. You must determine the percentage of time the vehicle is being used to meet business needs , and apply that number on your loan interest deduction you are claiming on your tax returns. If, for instance, you drive the vehicle 50 percent of the time for business purposes it is only possible to deduct 50 percent of loan interest on your tax returns. If you pay $1,000 in interest on your vehicle loan every year, you are able to only claim a $500 deduction. If however the vehicle is used entirely for business purposes and you are a business owner, the entire amount of interest can be deducted. Documentation to document any type of tax returns, it is best to keep accurate records and supporting documentation. It is important to be able to verify the expenses in case questions or audits arise. A few records you should keep for the purposes of claiming the tax deduction of the auto loan the interest on your tax returns include the following: A record or log of all trips taken within the vehicle used to work, and an odometer log mileage. Car loan repayment records that confirm the amount of interest you paid. While you aren’t able to take the tolls or parking fees as part of your auto loan interest deduction, you may also want to keep these types of receipts in order to prove your vehicle is used solely for commercial use. Bankrate tip
Documentation supporting your tax return should be kept 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 talk to a professional if There’s a question about whether you’re eligible for the auto loan interest deduction. You’re not sure about the best method to determine the precise amount of the deduction that should claim on your tax filing A can help guide you through the process and decide if the deduction makes sense for your unique circumstances. For instance, if you use the vehicle for business and personal uses, it may not be a good idea to take advantage of the deduction for auto loan interest deduction when the business use of the vehicle is minimal. Bankrate’s tip
Claiming this deduction may be more work than it’s worth if you only use the vehicle for business less than 50% all the time.
The bottom line: Deducting car loan interest on your tax returns is a valuable write-off if you’re either self-employed or self-employed. But before you claim this deduction, you must be certain you’re 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. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to manage their finances by providing clear, well-researched facts that break down otherwise complicated subjects into bite-sized pieces.
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