Tax season can be a confusing time, especially when you’re trying to determine which expenses might help lower your tax bill. Some common questions asked by insured drivers in the United States are “Is auto insurance tax deductible?” and “Are car repairs tax deductible?”
The answers to those questions depend mainly on how you use your vehicle. Let’s break it down to understand the scenarios where car insurance premiums, and even car repairs, might qualify as deductions on your U.S. tax return.
What if I drive for both business and personal purposes?
Car insurance premiums aren’t deductible if you’re using your car strictly for personal reasons—like driving to work, grocery shopping, or heading to the gym. The IRS doesn’t consider personal use a business expense, so these costs can’t be claimed on your tax return.
However, if you’re self-employed or a small business owner and you use your car for business purposes — even partially — you might be able to deduct a portion of the insurance premiums. Business use can include driving to meet clients, attending conferences, moving between franchises, or picking up or delivering business supplies or products.
Keep in mind that commuting to and from a regular workplace does not count as ‘business use.’ But even if you use your personal car for business tasks, you might be able to claim part of your expenses.
What about tax deductions for car owners who aren’t self-employed?
Self-employed individuals (that includes owning a small business) who use a personal car for business purposes can often deduct a portion of their auto insurance related to business use. But they’re not the only ones. Here are a few other groups that might qualify:
U.S. Armed Forces reservists: If you travel more than 100 miles from home for duty, you might be able to claim vehicle expenses.
Qualified performing artists: If you meet specific IRS criteria, car expenses (including insurance) could be deductible.
Fee-basis state or local government officials: Officials compensated on a fee basis may also deduct these expenses if the car is used for work.
Choose between deducting car insurance or deducting mileage
There are two primary ways to deduct vehicle-related expenses, including car insurance premiums:
1. Actual vehicle expenses method
With this method, you add up all the costs of using your personal car for business, including insurance premiums and depreciation. Then you’ll need to figure out how much of your driving is for business and how much is for personal use. For instance, if half of your driving is business-related, you can deduct 50 percent of your expenses.
This applies to taxpayers who use their personal cars for both business and personal reasons. If you’re using your car exclusively for business, you can deduct 100 percent of your auto insurance premiums and other vehicle expenses.
If you decide to go this route, it’s important to keep track of all your expenses. Here are some of the common costs that drivers using a personal vehicle for business may be able to deduct a percentage of:
- Car insurance premiums
- Gas and oil
- Repairs and maintenance
- Lease payments
- Registration fees and licenses
- Depreciation
- Parking fees and tolls
2. Standard mileage method
Alternatively, you can deduct a set amount for every mile driven for business purposes. For the 2024 tax year, the IRS mileage rate is $0.67 per mile. This method simplifies record-keeping but might result in a lower deduction compared to the Actual Expenses Method.
However, you can’t deduct your car insurance premiums separately if you go with the standard mileage rate. Tolls and parking fees are still deductible, though.
Do I need special tax forms to report these deductions?
To report these deductions, you’ll need to use one of two tax forms:
- Schedule C: This form is used by self-employed individuals to report income and expenses related to their business. If you’re running your own business, whether full-time or part-time, Schedule C is where you’ll document your vehicle-related deductions along with other business expenses.
- Form 2106: Employees or those in specific qualifying situations (like certain government employees or armed forces members) use this form to report unreimbursed business expenses, including vehicle costs. If you’re working for an employer and using your personal car for business purposes, this is the form you’ll need to track and claim your deductions.
Are car repairs tax deductible?
Yes, car repair expenses, just like insurance premiums, can be deductible if your vehicle is used for business purposes. Here’s how it works:
If your car breaks down or needs maintenance, you can deduct the business-use portion of the repair costs. For instance, if you use your vehicle for business half the time, you can claim 50 percent of any repair bills as a tax deduction. It’s important to keep track of both your business and personal use to calculate the correct percentage.
What if my car is stolen or totaled? Is that tax deductible?
If your car is stolen or totaled beyond repair — even if it was being used for personal purposes when the theft or damage occurred — you might be able to claim a tax deduction. Here’s what you need to know:
- You’ll need to file an insurance claim to start the process. Your deduction will be based on the amount not reimbursed by your insurance.
- The vehicle loss can’t be due to negligence (for example, leaving the car unlocked or driving recklessly).
- The loss must exceed your insurance policy’s deductible or coverage limits in order to claim a deduction. If your insurance payout covers the entire loss, you won’t be able to deduct anything.
- To claim a deduction, the loss must be greater than $100 and exceed 10 percent of your adjusted gross income (AGI). This means if your AGI is $100,000, your deductible loss would need to be over $10,000.
5 more tax benefits for car owners
In addition to the potential deductions mentioned earlier, there are several other tax breaks you may qualify for. If you’re unsure which ones apply to your situation, consulting a tax professional could be a smart move.
Here are five most common car-related tax benefits that people often take advantage of:
- Charitable donations: When you file your taxes, you might be eligible for a charitable contribution deduction if you gifted your car to charity last year.
- Doctors visits: You may be able to claim a deduction If you mainly used your car to drive yourself, a family member, or a dependent to medical appointments.
- Going green: You may qualify for a tax credit if you purchased an electric or hybrid vehicle during the tax year — but investigate qualification factors like vehicle eligibility, income limits, and state-specific incentives.
- Natural disasters: There’s a good chance you could deduct a loss on your tax return if your car was stolen or totaled due to a federally declared disaster, like a hurricane, tornado, flood, wildfire, earthquake, or severe winter storm.
- Vehicle tax payments: You might be able to claim a deduction if you paid personal property taxes on your car. Keep in mind, however, that there’s a cap on the total amount you can deduct for state and local taxes.
Helpful tips to steer you through the process
Keep good records: Whether you track mileage or save receipts, staying organized will make it a lot easier to substantiate your claim at tax time.
Review your deductions annually: Every year, check if using the Actual Expenses Method or the Standard Mileage Method will save you more on your taxes. You can switch methods annually, depending on how much you drive or what expenses you’ve had.
Get guidance from a tax professional: Tax laws can change frequently, and interpretations may vary based on individual circumstances. It’s always a good idea to consult a tax professional. They can help you maximize your deductions and file everything correctly.
Ready to do your taxes?
Claiming car insurance and other vehicle-related deductions can be a great way to save money, especially if you’re self-employed or regularly use your car for business. While personal-use expenses like insurance for a family car aren’t deductible, there are plenty of opportunities to claim business-use costs.
Tax time is a great opportunity to review your auto insurance coverage and uncover discounts that can lower your premiums throughout the year. Sometimes switching providers or policies can save you a lot of money. With so many options available, it can be tough to know where to start. That’s where our team of experts comes in. We’re here to help you navigate the process and find a policy that suits your needs and budget.
If you have questions about your current coverage or are ready to explore a new policy, reach out to a Baldwin Group expert today.
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Disclaimer: This article is intended for informational purposes only and does not constitute tax advice. Please consult a qualified tax professional for guidance tailored to your specific financial situation.
