Owning a car can be a significant expense, from monthly payments and insurance to maintenance and fuel costs. However, there’s a silver lining for car owners when tax season rolls around. Many tax deductions and credits are available to help reduce the financial burden of car ownership. To make sure you’re not leaving money on the table, here are seven tax deductions every car owner should be aware of.
Standard Mileage Deduction
If you use your vehicle for business purposes, you may be eligible for the standard mileage deduction. For the tax year 2023, the IRS allows you to deduct 58.5 cents per mile for business use. Keep a detailed mileage log to substantiate your claims.
Interest on Car Loans
The interest paid on your car loan may be tax-deductible if you use your vehicle for business purposes. This deduction applies whether you own the car personally or through a business entity. However, personal use of the vehicle may limit the amount you can deduct.
State and Local Sales Tax
If you itemize deductions on your federal tax return, you can deduct the state and local sales tax paid on your vehicle purchase. This can be a significant deduction, especially in states with high sales tax rates.
Charitable Use Deductions
If you use your vehicle for charitable activities, such as volunteering at a nonprofit organization, you can deduct the costs associated with the use of your car, like gas and mileage. Be sure to keep accurate records to substantiate your deductions.
If you’ve relocated for work and meet certain criteria, you can deduct moving expenses, including transportation costs. While this deduction has become more restrictive in recent years, it’s still worth exploring if you’ve made a job-related move.
If you use your vehicle for business purposes, you can claim depreciation as a deduction. The IRS offers various methods for calculating depreciation, so consult a tax professional to determine the best approach for your situation.
Electric Vehicle (EV) Tax Credits
For those who’ve embraced eco-friendly transportation, owning an electric vehicle (EV) can come with significant tax benefits. Depending on your EV’s battery capacity and manufacturer, you may qualify for federal tax credits of up to $7,500.