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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. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances with clear, well-researched information that breaks down complicated subjects into digestible pieces. The Bankrate promises
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Car loan interest can be deducted in certain circumstances where you use your vehicle for business use.
If you are able to take deductions for interest on a car loan interest from your tax bill Only those who are self-employed or have an enterprise and have the right to claim a tax deduction for car loan interest. If you are an employee of another's business, you can't claim this deduction. In addition, interest paid on a loan that is used to purchase a car to use for personal reasons is not deductable. If the vehicle in question is used for both business and personal needs, claiming this tax deduction can be a bit more complicated. You must determine how much time the vehicle is used to meet business requirements and then apply that figure on the loan interest deduction you are claiming on tax returns. For instance, if you use your vehicle 50 percent for business purposes it is only possible to deduct 50 percent of loan interest on tax returns. If you pay $1,000 interest on your car loan each year, you can only claim a deduction of $500. If however the vehicle is solely used for business and you are a business owner, the entire amount of interest could be written off. Documentation to document any kind of tax returns, it's best to keep accurate files and supporting documents. It is important to be able to verify all expenses should questions or audits arise. Some records to maintain in order to claim an tax deduction of the auto loan credit on tax return include: A log or record of all the trips you make within the vehicle used for business purposes, including an odometer log mileage. Car loan payment records verifying the interest paid. Though you cannot write off parking or tolls as part of the auto loan interest deduction, you might want to keep these types of receipts in order to prove it was used to conduct business reasons. Bankrate tip
Keep supporting documentation for at least 3 years from the time the tax return is filed.
If you're uncertain, you can 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 confused about the best method to determine the exact amount of the deduction to claim on your tax returns A can help you navigate the process and determine whether the deduction makes sense depending on your specific circumstances. For example, if you are using the vehicle for personal or business use, it may not be appropriate to use deduction for car loan interest deduction if business-related usage of the vehicle is minimal. Bankrate tip
Claiming this deduction may be more work than it's worth if you are using the vehicle to conduct business less than 50% per month.
The bottom line: Deducting car loan interest on tax returns could be an excellent write-off for you if a or you're self-employed. But before you claim this deduction, be sure you qualify. 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 editing and writing for Bankrate since the end of 2021. They are enthusiastic about helping readers gain confidence to manage their finances through providing precise, well-researched and well-written details that cut otherwise complicated topics into digestible pieces.
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