- Car Loans

Can you Claim Car Loans on Your Taxes?

In general, the answer to that question is no. The interest on personal loans (which a car loan is considered) usually cannot be deducted on your income tax.

But, under certain circumstances, interest on car loans could be taken as a deduction on your income tax.

A Qualifying Home Equity Loan

One of the most common ways to claim a car loan as a deduction is to take out a qualifying home equity loan. For example, let’s say you have equity of $50,000 in your home. You want to tap into that equity for some expenses you have.  You also want to be able to deduct the interest you pay on that loan on your yearly income tax.

Because you have good credit, you are able to secure a home equity loan of 80% to value or $40,000. You owe $20,000 on a new car you just purchased. What you would do is take $20,000 from the home equity funds and pay off the car. As you pay back the home equity loan, you would be able to claim the interest on your taxes. (Note: Make sure that the home equity loan you get is a qualifying plan. This means that the interest will be tax deductible)

Business Use

If you use your car part or full time for business use, you will not be able to deduct the car loan payment. However, you will be able to deduct car expenses as they relate to business use.