Is car loan interest tax deductible? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by offering financial calculators and interactive tools, publishing original and objective content. We also allow you to conduct your own research and examine information for no cost and help you make sound financial decisions. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website are provided by companies that compensate us. This compensation may impact how and where products are displayed on the site, such as, for example, the order in which they may appear within the listing categories, except where prohibited by law. Our mortgage, home equity and other home lending products. This compensation, however, does affect the content we publish or the reviews that appear on this website. We do not contain the vast array of companies or financial offers that may be accessible to you. SHARE Luis Alvarez/Getty Images
2 min 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. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain the confidence to take control of their finances by providing concise, well-studied information that reduces complex topics into manageable bites. The Bankrate promises
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Car loan interest is tax deductible in certain circumstances when you are using your car to conduct business.
You can deduct interest on a car loan interest from taxes Only those who are self-employed or own business for purposes can claim a tax deduction for automobile loan interest. If you are an employee of another’s business, you can’t claim this deduction. Additionally, the interest you pay on an loan that is used to purchase a car solely to use for personal reasons is not deductable. If the car in question is used for both personal and professional requirements, the process of claiming this tax deduction becomes a little more difficult. You need to determine how much time the vehicle is being used to meet business needs , and apply that number on what you claim as the loan interest deduction that you claim on tax returns. For instance, if you use your vehicle for 50 percent of the time for business reasons it is only possible to deduct 50 percent of loan interest on your tax returns. If you pay $1,000 in interest on your car loan each year, you can only claim a deduction of $500. If, on the other hand, the car is solely used for business and you are a business owner, the entire amount of the interest may be deducted. Documentation to document any type of tax returns, you should be sure to keep accurate documents and records. You’ll need to check all expenses should questions or audits arise. Some records to maintain when claiming the deduction for auto loan the interest on your tax returns include an account or log of all the trips you make in the vehicle for business use, which includes an odometer log mileage. Car loan payment records verifying the interest paid. Although you can’t write off parking or tolls as part of your automobile loan expense, it is possible that you might want to keep these types of receipts if they in proving your vehicle is used solely for commercial purposes. Bankrate tip
Keep supporting documentation for at least three years from the date when you file your tax return.
If you’re not sure, consult an expert seek out a professional when: You’re uncertain about whether you’re eligible for the car loan interest deduction. You’re confused about the best method to determine the precise amount of the deduction to claim on your tax return A can help guide you through the procedure and help you determine if the deduction is suitable in your particular circumstances. For instance, when you are using the car for both personal and business purposes, it might not make sense to claim the auto loan interest deduction when the business usage of the vehicle is not that significant. 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.
Bottom line Deducting car loan interest on your tax returns could be a valuable write-off if you’re self-employed or a freelancer. Before you can claim this deduction, you must be sure you qualify. Work with a tax professional if you’re uncertain about how to calculate 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 from late 2021. They are passionate about helping readers gain the confidence to control their finances by providing concise, well-researched, and clear information that breaks down otherwise complicated subjects into bite-sized pieces.
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