Most people who drive for business calculate their deduction using the standard mileage rate. In many cases, this deduction adds up to a significant amount and worth taking. But, don’t forget about these three often-overlooked business vehicle deductions for your business car.
Can I write off my car loan interest on taxes?
You normally cannot deduct your car loan interest payments. But, you can deduct these costs if it’s a business car. It can also be a vehicle you use for both personal and business purposes.
Car loan interest is tax deductible if it’s a business vehicle
You cannot deduct the actual car operating costs if you choose the standard mileage rate. The standard mileage rate already factors in costs like gas, taxes, and insurance. You can’t even deduct depreciation from your business car because that’s also factored in.
If you use the standard mileage rate, you are still allowed to deduct the following three actual expenses:
- Interest on a car loan
- Parking fees and tolls for business trips
- Personal property tax that you paid when you bought the vehicle, based on its value.
You can deduct these items because they do not factor into the standard mileage rate amount.
What car loan interest is tax deductible?
You may deduct interest on a loan for a car you use in your business. Taxpayers can even deduct the interest if you take out a home equity loan to buy a business vehicle. You can deduct only the business use percentage of interest and taxes on a car you use for business and personal reasons.
What car loan interest isn’t tax deductible?
The largest expense is usually the business car loan interest. Unfortunately, many people fail to deduct it because of confusion about the tax law. You can’t deduct the loan interest on a personal car but you can for a business vehicle.
If you’re an employee, you may not deduct interest on a car loan even if you use the car 100% for your job.
Can I deduct car loan interest if I use a car for business and personal reasons?
Example: Ralph uses his car 50 percent for his business and 50 percent for personal trips. He uses the standard mileage rate to deduct his car expenses. Ralph pays $3,000 a year in interest on his car loan. He may deduct 50% of this amount, or $1,500, as a business operating expense in addition to his business mileage deduction.
So, even if you use the standard mileage rate, make sure to keep track throughout the year of how much you spend for parking and tolls, and deduct it along with the business percentage of your car loan interest, and property tax you paid when you bought your car. These vehicle deductions can add up.
Can you write off your car payment on your taxes?
Typically, no. If you use the actual expense method, you can write off expenses like insurance, gas, repairs and more. But, you can’t deduct your car payments.
Instead, you can deduct the cost of your vehicle through depreciation. You may deduct the business portion of lease payments, though.
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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.