When you take out an auto loan, you’re likely focused on obtaining the funding for the vehicle that you desire. However, did you know that an auto loan can make you eligible for some great tax benefits?
Show You Use Your Car For Business Purposes
While a vehicle may be considered a luxury by the IRS for the average person, it’s considered an asset for those who are self-employed or business owners. If you can show that your vehicle has been used for business purposes, you can enjoy some great tax benefits.
The trick is to prove that your car loan is solely for business purposes and not personal use. The definition of auto loan, according to Lantern by SoFi is “… a vehicle loan is essentially a contract between the car buyer and the financing company or lender.” You may show that the loan was taken out under your name but was still used for business purposes.
You Can Claim Interest Payments
It’s crucial to note that you can’t claim the total expense of your monthly auto loan payment. Rather, you may only claim the interest that is paid on the loan. You’ll need to take a look at your yearly auto loan statements provided by your lender to determine the total amount of interest that you paid over the year. This is the amount that you can legally claim on your taxes.
Claiming Asset Depreciation
Another helpful area of tax law that you can take advantage of for your taxes is the depreciation of assets. Your vehicle is considered an asset, no matter whether you purchased it outright or with a car loan. You can show your car’s depreciation as an expense and exempt that amount from the taxes that you have to pay annually.
A Note on Salaried Individuals
Unfortunately, tax benefits can only be reaped by those who are business owners or self-employed. If you’re a salaried individual, you’re not given the ability to claim the interest or depreciation expenses on your tax forms. You may want to consider starting a side business so that you can report your vehicle loan as a business expense on your future taxes.
Deductions For Salaried Individuals
While you may not be able to deduct interest payments and depreciation expenses, you can deduct other aspects that go along with your vehicle. For example, you may deduct the cost of gas, oil, repairs, registration fees, and even insurance. This is considering the fact that you legally use your vehicle for business purposes. It’s always best to contact a tax attorney to learn about all the different types of tax deductions that you can take advantage of in respect to your vehicle on your tax returns.
Many people don’t realize that they can reap some great tax benefits from taking out an auto loan. If you’re a business owner or self-employed, you should be claiming the interest you pay on your auto loan and your car’s depreciation expense every year on your tax returns.