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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 editing and writing for Bankrate since the beginning of 2021. They are passionate about helping readers gain confidence to control their finances through providing clear, well-researched information that breaks down complex topics into manageable bites. The Bankrate promises
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If you have questions about money. Bankrate has the answers. Our experts have been helping you manage your money for over four decades. We are constantly striving to provide consumers with the expert advice and tools needed to be successful throughout their financial journey. Bankrate adheres to a strict code of conduct policy, which means you can be confident that our content is truthful and precise. Our award-winning editors and reporters produce honest and reliable content that will help you make the best financial decisions. The content created by our editorial staff is objective, truthful, and not influenced by our advertisers. We’re transparent about how we are in a position to provide quality content, competitive rates, and useful tools for our customers by describing how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the promotion of sponsored goods and, services, or by you clicking on certain links posted on our site. This compensation could impact how, where and when products appear within listing categories, with the exception of those it is prohibited by law for our mortgage or home equity, and other products for home loans. Other factors, such as our own rules for our website and whether or not a product is offered in your region or within your personal credit score can also impact how and where products appear on this site. We strive to offer a wide range offers, Bankrate does not include information about every credit or financial product or service. Owning a car that you use for some or all of the time to run your company can bring tax benefits. Perhaps the most well-known benefit can be the mileage deduct, which is a amount set by the IRS which small-scale entrepreneurs as well as self-employed people can take advantage of to deduct some of the costs associated using a vehicle to serve business needs. But that’s not the only write-off available to owners of a vehicle to meet business requirements. If you own a car , you might also be able to deduct the interest while making your federal tax returns. Is interest on a car loan deductible?
Car loan interest is tax deductible in certain situations where you use your vehicle to conduct business.
When you can claim deductions for car loan interest from taxes Only individuals who are self-employed, or who own business for purposes can be eligible for a tax deduction on car loan interest. If you’re an employee of a different company, you are not eligible for this deduction. Furthermore, the interest on an loan to purchase a car solely for personal use isn’t tax-deductible. If the vehicle is used for both personal and professional requirements, then claiming the tax deduction can be a bit more complex. You need to determine the amount of time that the vehicle is being used for personal needs and apply that calculation to the loan interest deduction being claimed on tax returns. For instance, if you drive the vehicle for 50 percent for business reasons it is only possible to deduct 50 percent of loan interest on tax returns. If you pay $1,000 interest on your vehicle loan each year, you can only claim a $500 deduction. If however the car is being exclusively for business use that is, then the whole amount of interest can be deducted. Documentation to be kept When you file any kind of tax returns, it is best to keep accurate documents and records. It is important to be able to check all expenses should there be any questions or audits arise. A few records you should keep when claiming your auto loan interest deduction on your tax return are an account or log of all trips taken in the vehicle for business purposes, including the log of the odometer mileage. Car loan payments records that verify the interest paid. Though you cannot write off parking or tolls in the context of the car loan tax deduction for interest, you may also need to keep these types of receipts in order to in proving your vehicle is used solely for commercial use. Bankrate tip
Maintain supporting documents for a minimum of three years from the time the tax return is filed.
If you’re unsure, hire a professional It’s best to talk to a professional if There’s a question about whether you’re eligible for the car loan interest deduction. You’re not sure of how to determine the exact amount of the deduction that should claim on your tax returns A professional can you navigate the process and decide if the deduction is suitable in your particular situation. For instance, when you are using the vehicle for business and personal uses, it may not make sense to use an auto loan interest deduction if the business usage of the vehicle isn’t that important. Bankrate’s tip
This deduction could require more effort than it is worth if you only use the vehicle to conduct business less than 50 percent of the time.
Bottom line Deducting car loan interest from your tax returns is a valuable write-off if you’re self-employed or a freelancer. However, before you can claim this deduction, be sure you qualify. Talk to a tax expert if you’re uncertain about how to determine the exact amount you could be able to claim.
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 late 2021. They are passionate about helping readers gain confidence to take control of their finances with precise, well-researched and well-written facts that break down otherwise complicated topics into digestible pieces.
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