Getting tax breaks from an auto loan depends on how you use the vehicle you buy. Unless you're a business owner, you generally cannot deduct the interest on a vehicle loan because the Internal Revenue Service treats it as "personal." Even if you can't claim the interest, your vehicle can bring tax relief through other deductions.
Employees and the Deduction
Using your vehicle on the job doesn't convert the interest on your loan from personal to business. You can, though, itemize as an employee expense the nonreimbursed costs of driving to perform your job. You may write off either the mileage or actual car expenses, such as gas and parking fees. For 2014, the standard rate was 56 cents per mile. Deductions for such work-related travel expenses go on Schedule A of Form 1040.
On Schedule C of Form 1040, you can write off the vehicle loan interest as an expense of business ownership if you're personally liable for repaying the loan. The deduction is limited to your share of the debt if others are liable with you. For example, if you're responsible for half of the loan and the interest totals $1,000, you get a $500 break. Also, you must allocate the interest between your business use and personal use of the car.
Home Equity Loans
If you take out a home equity loan to buy an automobile, even for personal use, you can take the interest as an itemized deduction. While you get a tax break, you're risking the loss of your home if you can't make the payments.
- Internal Revenue Service: Topic 505 -- Interest Expense
- Internal Revenue Service: Publication 334 -- Business Expenses
- Internal Revenue Service: Publication 17 -- Chapter 26 Car Expenses and Other Employee Business Expenses
- Internal Revenue Service: Publication 535 -- Business Expenses
- Internal Revenue Service: Publication 936 -- Home Mortgage Interest
- Internal Revenue Service: Instructions for Schedule C -- Profit or Loss From Business
- Internal Revenue Service: Instructions for Schedule A (Form 1040) -- Itemized Deductions