Is the Interest on Your Car Loan Tax Deductible?

There are a lot of myths and misconceptions out there when it comes to taxes. And when it comes to deductible expenses, the car loan interest is one area where there’s a lot of confusion. So, can you deduct the interest on your car loan come tax time? Let’s take a look.

Interest on Personal Loans Not Deductible

The interest paid on most personal loans, including car loans, is not tax deductible. That’s because the Internal Revenue Service (IRS) considers personal loans to be “personal expenditures.” This means that the IRS views the money you borrowed as being spent on yourself, rather than on a business expense. As a result, you can’t deduct the interest you paid on your car loan come tax time.

However, there is one exception to this rule. If you use your car for business purposes—such as if you’re a delivery driver or salesperson—you may be able to deduct the interest on your car loan as a business expense. However, you can only do so if you itemize your deductions rather than taking the standard deduction. You’ll also need to make sure that you have all the necessary documentation to prove that your car is used for business purposes.

Conclusion:

As a general rule, you cannot deduct the interest paid on a car loan come tax time. However, there is one exception to this rule: if you use your car for business purposes, you may be able to deduct the interest on your loan as a business expense. So, if you’re thinking about taking out a car loan and are wondering whether or not the interest will be tax deductible, keep in mind that it generally won’t be—unless you use your car for business purposes.