Is Interest Paid On Auto Loan Tax Deductible
Answer. Typically, deducting car loan interest is not allowed. But there is one exception to this rule. If you use your car for business purposes you may be allowed to partially deduct car loan interest as a business expense. If you use your car for business purposes, you may be able to deduct actual vehicle expenses.
Topic Number 505 – Interest Expense. Interest is an amount you pay for the use of borrowed money. Some interest can be claimed as a deduction or as a credit. To deduct interest you paid on a debt, review each interest expense to determine how it qualifies and where to take the deduction.
However, the Tax Reform Act of 1986 made significant changes to the tax implications of interest on consumer loans, and it limited the types of credit that could reduce a person’s income taxes. As a result of that 1986 bill, most consumer loan interest payments are no longer tax deductible.
The question of what types of interest payments are tax deductible used to be a simple one, but since 1986, the law governing tax deductible interest payments has become very complicated. The general rule is that interest payments are tax deductible, but there are many exceptions to consider when filing taxes.
There may be times you can claim IRS car tax deductions for interest paid on a car loan to help lower the amount of federal taxes you owe. Car loan interest can add thousands of dollars to the price of a new car or truck. So, being able to deduct the interest on your taxes can help reduce the overall cost of ownership.
As a result, you typically have higher interest rates than loans backed by your home. The interest on a personal loan normally is not tax-deductible because the internal revenue service treats such interest as personal interest. By moving or using your debt for non-personal purposes, however, even a personal loan can reap tax savings.
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Car loan interest would be deductible if the vehicle was used for self employment, or in the service of an employer, but it is not deductible for personal use.
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