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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. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to manage their finances by providing concise, well-studied 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.
If you are able to take deductions for the cost of a car loan interest from your taxes Only those who are self-employed or own an enterprise and have the right to take advantage of a tax deduction for automobile loan interest. If you’re an employee of another’s company, you are not eligible for this deduction. Additionally, the interest you pay on the loan that is used to purchase a vehicle solely to use for personal reasons is not deductable. If the car in question is used for business and personal requirements, the process of claiming this tax deduction is slightly more complex. You need to determine the percentage of time the vehicle is used for personal needs , and apply that number in what you claim as the loan interest deduction being claimed on your tax returns. For example, if you use the vehicle for 50 percent of the time for business reasons, you can only deduct 50% of the loan interest on your tax returns. If you pay $1,000 in interest on your car loan each year, you can only claim a $500 deduction. If however the car is being used entirely for business purposes, then the full amount of the interest may be written off. Documentation to be kept When you file any type of tax returns, you should be sure to keep meticulous documents and records. It is important to be able to check the expenses in case questions or audits arise. A few records you should keep when claiming an auto loan the interest on your tax returns include an account or log of all trips taken in the vehicle for business use, which includes the log of the odometer mileage. Car loan payment records verifying the interest paid. While you aren’t able to claim tolls or parking in the context of the automobile loan interest deduction, you may also need to keep these types of receipts if they prove that the vehicle was used for business purposes. Bankrate tip
Documentation supporting your tax return should be kept for at least three years after the date you file the tax return.
If you’re uncertain, you can hire a professional It’s best to consult a professional if: You’re uncertain about whether you’re eligible for the auto loan interest deduction. You’re not sure about how to properly determine the exact amount of the deduction that should get on your tax return A can help guide you through the process and decide if the deduction is suitable for your unique circumstances. For instance, if you are using the car for both personal and business use, it may not be a good idea to use deduction for deduction for auto loan interest deduction if business-related usage of the vehicle is minimal. Bankrate’s tip
This deduction could require more work than it’s worth if you only use the vehicle to conduct business less than 50 percent per month.
Bottom line Deducting the car loan interest from your tax returns can be a valuable write-off if you’re self-employed or a freelancer. Before you can take advantage of this deduction, make sure that you are eligible. Work with a tax professional If you’re unsure of 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. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping readers gain confidence to control their finances by providing clear, well-researched information that breaks down complicated subjects into bite-sized pieces.
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