Can I Write Off My Car Purchase?
At the end of the year, individuals and businesses may be looking at their expenses in preparation for tax day in April. While many individuals and families take the standard deduction, others may itemize deductions on their return.
The Internal Revenue Service lays out all the reasons why and when individuals may opt to itemize instead of taking the standard deduction. For example, large medical expenses and mortgage interest could exceed the standard deduction. What about a car purchase, though? Individuals may wonder, “Can I write off my car purchase?”
Is a Car Purchase Tax Deductible?
Buying a new car is expensive, and it’s probably used to commute to work. Can the purchase price be used as a write off on the yearly tax return? After all, mortgage interest is listed as a tax deduction for those who itemize.
For tax purposes, a car purchase isn’t the same as buying a home. Individuals may use the car to commute back and forth to work, but this is perceived as a part of life’s expenses. A car purchase isn’t a tax write off. That vehicle—no matter how expensive–isn’t tax deductible for most individuals.
Can Car Expenses Ever Be Used as a Deduction?
While individuals who are employees can’t deduct their vehicle for tax purposes, those who own their own business or who are independent contractors could deduct vehicle expenses. Again, the IRS lays out all the details for what car expenses are tax deductible.
There are also two ways that business owners could deduct their vehicle expenses. The IRS states that they could use “actual expenses,” which include depreciation, lease payments, gas and oil, tires, any repairs, insurance costs and any registration fees.
Businesses also could opt to just deduct mileage, but once this method is used it needs to continue being used in future returns for the duration of the vehicle’s lease. Businesses can’t deduct mileage and then decide they want to deduct actual expenses the next year.
What About Employees Who Use Their Car for Their Job?
Some employees might use their car for their job. This could include pizza delivery drivers working for a restaurant (hired as employees) or maybe an executive who has to travel to clients throughout the day. If the car is used for business, can employees deduct mileage or other costs?
The IRS explains that employees “…can no longer take an employee business expense deduction as part of their miscellaneous itemized deductions reported on Schedule A. Employees can’t deduct this cost even if their employer doesn’t reimburse the employee for using their own car.”
This new rule came into effect in 2017. Unfortunately, employees who drive many miles during the workday can’t take a deduction. Perhaps, though, they could negotiate with their employer to help with this expense.
Save All Receipts and Documentation
When itemizing car expenses or when using mileage as the basis for a deduction, it is very important that individuals keep all the receipts and documentation related to deductions.
In the case of a tax audit, the IRS will want to see proof of the costs of these deductions. How long should individuals retain their receipts for deductions? The answer depends on the tax situation. However, in some cases, records may need to be retained for up to seven years.
Are Electric Vehicles Tax Deductible?
Individuals may be looking for any deduction that they may claim. Homeowners can often take deductions related to major energy-efficient improvements on their home. What about individuals who purchased electric vehicles? Are electric vehicles tax deductible?
While driving an energy-efficient car is great for the environment and would seem like it could have tax benefits. Can individuals write off their electric vehicle purchase?
There is, in fact, a tax benefit for an electric vehicle. However, it isn’t in the form of a deduction. Those who purchase an electric vehicle may receive a tax credit; this offsets the taxes owed. Kelley Blue Book explains that the credit can’t be used for a used/pre-owned vehicle. In addition, the credit wanes after so many models are sold of a particular vehicle.
For those who want to know if their electric car purchase qualifies for a tax credit, consult with a certified public accountant (CPA) or tax professional.
That Vehicle May Increase Other Taxes
Many individuals cannot deduct costs associated with their vehicle, and they may even face increased taxes for that purchase. While taxes related to income filings through the IRS and the individual’s state won’t be impacted, personal property taxes may be bumped higher with a new car purchase.
Personal property taxes vary by county and state. Not all new car buyers may face personal property taxes on their vehicles, but those who are charged this tax may find that their tax liability has increased with their purchase.
There are actually many states that don’t charge personal property taxes to vehicles. These states include; Alabama, the District of Columbia, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maryland, North Dakota, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Vermont, Washington and Wisconsin.
In addition, the car purchase also may be subjected to sales tax. However, there are many states where this tax doesn’t apply. For those who do face the addition of sales tax to their car price, the tax might be included in the loan. In some cases, though, buyers may have to pay this tax in full separately from their loan payments.
When buying a car, talk to the sales team about sales tax and inquire about the possibility of rolling the amount into the loan.
Charitable Deductions Related to Vehicles
Some car owners donate their car to a charity, and vehicle donations could be used as a tax deduction. In many cases, the vehicle is auctioned off and a portion of the proceeds benefits the charity.
The charity then sends the donor a letter stating the sale price of the vehicle. The minimum deduction is usually $500, unless the fair market price is less than this amount. Those who take the standard deduction cannot deduct their car’s donation.
Use Carzing to Find the Best Vehicle for the Budget
Individuals can’t typically deduct car expenses on their taxes, even if they drive many miles for work. To minimize the financial cost of vehicle ownership, they may focus a new car search on lower-priced vehicles that are fuel efficient for long commutes.
Use Carzing to find the best cars for the budget. Search for cars by price to ensure that every option fits into the ideal price range. Buyers can set exact budget parameters and even sort results to view the least expensive vehicles at the top of the page.
Carzing also lets buyers get pre-qualified for financing. Buyers can find financing with the terms and monthly payments that work best for their finances. Carzing also helps buyers understand how much money is expected for a down payment.
With Carzing, the buyer is always in control. There is never any sales pressure, and buyers can take their time to find the best car and the best financing for their needs. This means that the visit to the dealership can be focused on completing the credit application and finalizing the deal. Drive off the lot in the best car for the budget and the individual’s driving needs.