As a former dealer, a very popular question my customers had was: Is buying a car tax deductible?
Yes, you can claim a car you bought on your taxes, but only in certain situations. The most common ways to deduct vehicle costs are:
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1. Business Use Deduction
If you use your car for business purposes, you may be able to deduct some or all of the costs. There are two methods for calculating the potential deduction:
- Standard Mileage Rate: For tax year 2023, you can deduct 65.5 cents per mile driven for business use. This rate increases to 67 cents per mile in 2024.
- Actual Expenses: You can deduct the actual costs of operating your vehicle for business, including gas, oil, repairs, insurance, and depreciation. If the car is used for both business and personal purposes, you must divide the expenses based on the mileage used for each.
To claim the deduction, you must be self-employed, a business owner, or fall into certain employee categories like armed forces reservists or fee-basis government officials.
The business use percentage is calculated by dividing business miles by total miles driven.
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2. Section 179 Deduction
Section 179 allows you to deduct the cost of certain property, including vehicles, as an expense when the property is placed in service. For passenger vehicles under 6,000 lbs, you can deduct up to $19,200 in 2023. For SUVs, trucks, and vans over 6,000 lbs, the limit is $27,000 in 2022 and $28,900 in 2023.
3. Electric Vehicle Tax Credit
If you purchase a new plug-in electric vehicle, you may be eligible for a federal tax credit of up to $7,500. The credit amount varies based on the vehicle’s battery capacity. Note that the credit phases out once a manufacturer has sold 200,000 qualifying vehicles.
More info on the EV Federal Tax Credits: https://afdc.energy.gov/laws/409
4. Vehicle Sales Tax Deduction
Some states allow you to deduct vehicle sales tax on your state income tax return. The rules vary by state, so check with your state’s tax agency for details.
5. Charitable Donation
If you donate your car to a qualified charitable organization, you may claim a tax deduction for the fair market value of the vehicle up to certain limits based on the sale price.
It’s important to keep accurate records, including mileage logs and receipts, to support all your deductions.
Consult with a tax professional to ensure you are claiming deductions correctly.
Illegal Tax Write-Offs For Cars
Some people may try to claim personal vehicle use as business use or inflate their mileage, but this is considered tax evasion and is illegal.
Deliberately underreporting income or claiming false deductions can lead to penalties and criminal charges.
Article Summary
You can deduct vehicle costs on your taxes if you use your car for business, purchase an electric vehicle, donate your car to charity, or claim a sales tax deduction in certain states. The deduction amount depends on factors like the vehicle’s cost, business use percentage, and applicable limits.
