Is Buying a New Car Tax Deductible?
Buying a new car is a big investment with many additional fees that aren’t included in the sticker price, including tax. So is buying a new car tax deductible? Depending on where you live and your intended use for the vehicle, you may be able to receive a car tax deduction; learn how with these tips from Green Light Auto Credit.
What is the New Car Tax Deduction?
Whether you are buying your new car for personal or business use, you may be able to access a car tax deduction. But this deduction comes with a choice and will require you to play with the numbers.
Taxpayers are able to deduct either:
- Local and state sales taxes OR
- Local and state income taxes
The IRS does not allow for both deductions, so you’ll need to see which option comes out better in your favor. Your tax, title, and licence fees (or TT&L) will be listed in your purchase order.
According to LendingTree: “If your state has a general sales tax rate that is lower than its car sales tax, you can only deduct the amount you would have paid with the general rate. For example, if you bought a car for $10,000 and paid $500 in taxes because of the state’s 5% car sales tax, but your state charges a 4% general sales tax, you would only be able to deduct $400 on your taxes.”
So what is the new car tax deduction? It will vary depending on whether or not your state charges sales tax and what that rate is. For example, the state sales tax rate in Missouri is 4.225% and 6.25% in Illinois.
Other Car Tax Deductions
In addition to potentially writing off your new car sales tax, another car tax deduction involves the ongoing use, insurance, and upkeep of your vehicle. If you are using your car for work, charity, medical, or moving expenses, you may be able to deduct:
- Car mileage: You may be able to receive mileage reimbursement if your car is for business purposes. For example, in 2019 the rate was 58 cents on the mile; if you drove 5,000 miles for work, you could’ve received a $2,900 deduction.
- Car depreciation: There are several ways to write off car depreciation, though the details require some advanced tax understanding. Consult with a tax professional for a more thorough explanation.
When it comes to taxes, the best way to make sure you’re doing things right is to work with an accountant or tax expert. Professionals can walk you through your local sales tax rates and decide whether the new car tax deduction comes out in your favor.
Get Answers With Green Light Auto Credit!
If you’re still unsure whether buying a new car is deductible, or if you need more help securing your auto financing, contact us today! Our financial team is here to help answer your questions and get you into a great car that works for you.
