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 that provide objective and original content. This allows users to conduct research and compare data for free – so that you can make financial decisions with confidence. Bankrate has partnerships with issuers such as, 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 site are from companies that pay us. This compensation may impact how and when products are featured on this site, including, for example, the order in which they be listed within the categories of listing, except where prohibited by law for our mortgage, home equity and other home lending products. However, this compensation will not influence the information we publish, or the reviews appear on this website. We do not contain the universe of companies or financial offerings that could 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 passionate about helping readers gain confidence to manage their finances with clear, well-researched information that breaks down complicated topics into bite-sized pieces. The Bankrate promise
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Car loan interest can be deducted in certain instances when you are using your car for business purposes.
When you can deduct car loan interest from your taxes Only those who are self-employed, or who own an enterprise and have the right to take advantage of a tax deduction for the car loan interest. If you are an employee of another’s business, you can’t claim this deduction. Additionally, the interest you pay on the loan used to purchase a car solely to use for personal reasons is not deductable. If the vehicle in question is used for personal and professional requirements, then claiming the tax deduction becomes a little more difficult. You need to determine the percentage of time the vehicle is driven for personal requirements and then apply that figure in what you claim as the loan interest deduction that you claim on tax returns. For instance, if you use the vehicle 50 percent of the time to fulfill business needs, you can only deduct 50% of the loan interest on your tax returns. If you have to pay $1,000 interest on your vehicle loan every year, you are able to only claim a $500 deduction. If you, however, the car is used entirely for business purposes that is, then the whole amount of interest can be written off. Documentation to document any kind on your tax returns, it is best to keep meticulous files and supporting documents. It is important to be able to confirm all expenses should there be any questions or audits arise. Certain records to keep in mind in order to claim an auto loan the interest on your tax returns include the following: A record or log of every trip you take within the vehicle used for business use, which includes a log of the odometer mileage. Car loan payment records verifying the interest paid. Although you can’t claim tolls or parking as part of your auto loan tax deduction for interest, you might want to keep these types of receipts in order to in proving that the vehicle was used for business purposes. Bankrate tip
Maintain supporting documents for at least three years from the date you file the tax return.
If you’re unsure, hire a professional It’s best to seek out a professional when: There’s a question about whether you’re eligible for the auto loan interest deduction You’re unsure about how to properly determine the precise amount of the deduction to get on your tax return A professional can assist you in the process and decide if the deduction makes sense in your particular circumstances. For instance, when you use your vehicle for business and personal purposes, it might not be appropriate to take advantage of the car loan interest deduction if the business use of the vehicle is not that significant. Bankrate tip
The deduction you claim could be more effort than it is worth if you only use the vehicle to conduct business less than 50% all the time.
Bottom line Deducting the car loan interest on your tax returns can be a valuable write-off if you’re either self-employed or self-employed. Before you can claim this deduction, you must be sure that you are eligible. Work with a tax professional if you’re uncertain about how to calculate the exact amount you may be eligible for.
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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 writing and editing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to control their finances through providing precise, well-researched and well-written facts that break down complicated topics into digestible pieces.
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