Looking to buy a new vehicle? Wondering if your purchase qualifies for tax deductions?
Buying a car for personal or business use may have tax-deductible benefits. The IRS allows taxpayers to deduct either local and state sales taxes or local and state income taxes, but not both. You can also deduct some of your vehicle’s operating costs if you use the car for business, charity or medical purposes.
Since it’s tax season and everyone has taxes on their brain, let’s cover what you need to know about tax deductions for personal vehicles.
Car Sales Tax
You may be able to deduct the car sales tax you paid when you purchased a new or used vehicle from a private seller or dealership. On your purchase order, it will state the amount owed in car sales tax.
Both local states and local governments can charge sales tax. There are only five states that don’t pay any sales tax when purchasing a car: Alaska, Delaware, Montana, New Hampshire and Oregon.
Some states also charge personal property taxes in addition to the sales tax. Property taxes are typically based on the car’s value. The higher the value of the car, the more you’ll pay in property taxes.
Since the IRS only allows you to deduct up to $10,000 total in sales, income and property taxes, you’ll want to compare the two numbers – property tax and sales tax – and deduct the one that is larger.
To determine this, you may have to play around with the numbers using tax software. You can itemize your deductions, or take a standard deduction. If you live in a state that doesn’t charge sales tax, then you’ll obviously just deduct the property taxes.
What if I Use My Vehicle for Business, Too?
If you use your car exclusively for business, you can write off most, if not all, of your car expenses, including car depreciation and car mileage. If you use your car for both business and personal purposes, as many people do, you’ll need to divide your expenses based on the mileage you’re using for each.
You may also qualify for deductions if you own an electric vehicle. There is a $7,500 federal income tax credit for electric or plug-in hybrid vehicles, in addition to local or state incentives. You can learn more about driving down your taxes in this article from TurboTax.
If you’re thinking about buying a car, you may be able to write some of it off on next year’s taxes, especially if you plan to use the vehicle for business purposes as well. To browse affordable repo cars directly from banks, lenders and credit unions, visit RepoFinder.com today!