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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 interactive tools and financial calculators as well as publishing independent and objective content, by enabling you to conduct your own research and compare data for free to help you make financial decisions with confidence. Bankrate has partnerships with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this website are provided by companies that compensate us. This compensation can affect the way and where products appear on this website, for example for instance, the order in which they may appear within the listing categories in the event that they are not permitted by law. This applies to our mortgage home equity, mortgage and other home loan products. However, this compensation will have no impact on the content we publish or the reviews you see on this site. We do not contain the entire universe of businesses or financial offers that may be open to you. SHARE Luis Alvarez/Getty images
2 minutes 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. 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 confidence to control their finances by providing concise, well-studied information that reduces complicated topics into bite-sized pieces. The Bankrate promises
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You have money questions. Bankrate can help. Our experts have been helping you master your finances for more than four years. We strive to continuously provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate adheres to a strict code of conduct policy, which means you can be confident that our information is trustworthy and accurate. Our award-winning editors, reporters and editors provide honest and trustworthy information to assist you in making the right financial choices. Our content produced by our editorial team is objective, factual and is not influenced by our advertisers. We’re open about the ways we’re capable of bringing high-quality content, competitive rates, and useful tools to you by explaining how we earn our money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products or services, or by you clicking on specific links on our website. This compensation could impact how, where and in what order the items appear in listing categories, unless the law prohibits it for our mortgage, home equity and other home lending products. Other factors, such as our own rules for our website and whether or not a product is available in the area you reside in or is within your own personal credit score may also influence how and where products appear on this website. We strive to offer an array of offers, Bankrate does not include specific information on every credit or financial products or services. The ownership of a vehicle that you use for some or all the time for your company can bring tax advantages. Perhaps the most well-known benefit of this is the typical mileage deduction which is a rate that is set by the IRS which small-scale entrepreneurs and those who are self-employed are able to use to deduct the expenses that come with operating a vehicle for business use. But that’s not the only write-off for people who own a vehicle to meet business requirements. If you have a you may also be able to deduct the interest when filing your federal tax returns. Can the interest you pay on an auto loan deductible?
Car loan interest is deductible in certain instances where you use your vehicle for business purposes.
When you can deduct the cost of a car loan interest from taxes Only those who are self-employed or have business for purposes can take advantage of a tax deduction for car loan interest. If you’re an employee of a different company, you are not eligible for this deduction. Furthermore, the interest on the loan to purchase a car solely to use for personal reasons is not tax-deductible. If the vehicle in question is used for personal and business requirements, the process of claiming this tax deduction can be a bit more difficult. You must determine the percentage of time the vehicle is driven for personal needs and apply that calculation in your loan interest deduction you are claiming on tax returns. For instance, if you use the vehicle for 50 percent of the time to fulfill business needs it is only possible to deduct 50% of the loan interest on tax returns. If you pay $1,000 interest on your car loan annually, you can only claim a deduction of $500. If, on the other hand the car is being used entirely for business purposes that is, then the whole amount of interest can be deducted. Documentation to keep When of any kind on your tax returns, you should be sure to keep accurate files and supporting documents. You’ll need to confirm all expenses should there be any questions or audits ever occur. A few records you should keep in order to claim an deduction for auto loan the interest on your tax returns include the following: A record or log of all trips taken by the vehicle for business use, which includes an odometer log mileage. The car loan repayment records that confirm the amount of interest that was paid. Though you cannot take the tolls or parking fees as part of your car loan expense, it is possible that you may also want to keep these types of receipts if they prove your vehicle is used solely for commercial use. Bankrate tip
Keep supporting documentation for at least 3 years from the date when you file your tax return.
If you’re unsure, hire a professional It’s best to consult a professional if: Aren’t sure if you qualify for the car loan interest deduction. You’re not sure about the best method to determine the exact amount of the deduction to be claimed on your tax filing A can help guide you through the process and decide if the deduction is suitable depending on your specific situation. For example, if you are using the vehicle for business and personal uses, it may not make sense to claim deduction for car loan interest deduction when the business use of the vehicle is minimal. Bankrate’s tip
The deduction you claim could be more work than it’s worth if you only use the vehicle for business purposes less than 50 percent per month.
Bottom line Deducting the car loan interest from your tax returns is a valuable write-off if you’re either self-employed or self-employed. Before you can claim this deduction, be sure that you are eligible. Consult a tax professional in case you’re not sure 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. 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 confidence to take control of their finances through providing clear, well-researched details that cut otherwise complicated subjects into bite-sized pieces.
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