The federal government gives you a few tax breaks that help you meet the high costs of keeping your car on the road. Most of these deductions apply only for business or work use of your car. Taking car-related deductions can raise red flags at the IRS, so make sure you understand what you can deduct and how to deduct it.
Can a New Car Be Deducted?
You can't deduct the actual cost of a new car unless you're using it for business. Then, you can deduct either depreciation or the cost of a new car lease. Through 2011, you could deduct any state and local sales taxes you paid on a new personal car, but that exemption expired on Jan. 1, 2012, and has not been renewed as of September 2012. You could claim this deduction only if you itemized and only if you did not deduct state and local income taxes. It wasn't just for cars -- you could deduct any sales tax you paid on anything you bought. Congress created the sales tax deduction option for the 2005 tax year, then scheduled it to sunset after 2011 unless further action intervenes.
Can Car Repairs Be Counted As a Tax Deduction?
You can't take any personal car operating expenses off your taxes. You can deduct car repairs if you're using your car for business or work. If you're working for yourself or own your own business, you can deduct all your car repair and maintenance bills so long as you use the car only for business. If you're an employee or if you're on your own but you use your business car for personal use, you can deduct the percentage of repair costs equal to the percentage of the time you use the car for work or business.
Does a Car Need to Be Donated in the Same State That Tax Is Filed to Be Deductible?
The IRS just requires that you give your car to a legitimate charity that is registered with the state where it operates as well as being a federal tax-exempt organization. You'll have to prove the value of your donation, so get a receipt from the charity that shows the price you could get if you sold it. You'll need a receipt if the car is worth more than $250, and you'll need to file an IRS Form 8383 if it's worth more than $500. You'll also need an appraiser's report if you're donating a car worth more than $5,000.
Can College Students Deduct Car Mileage on Income Tax?
If you're a full-time student, you can't deduct any of your transportation expenses. If you're taking college courses that are necessary for your job, you can deduct 55.5 cents per mile if you drive from home or work to your classes. The classes have to be necessary for you to keep your job or salary. If you're taking classes to help you change careers, you can't deduct mileage.
Can Out of Pocket Car Rental Expenses Due to an Accident Be Tax Deductible?
You can't deduct the cost of a car you rent while you wait for insurance to repair or replace your personal car after an accident. If the car was business property, you can deduct the cost of a rental as you would deduct any other business expense.
- The Wall Street Journal: Ask Dow Jones: You Can Opt to Deduct Sales Taxes
- IRS.gov: Topic 503 - Deductible Taxes
- IRS.gov: Topic 510 - Business Use of Car
- Internal Revenue Service: A Donor's Guide to Car Donations
- Internal Revenue Service: Publication 970: Tax Benefits for Education: Section 12: Business Deduction for Work-Related Education
- Internal Revenue Service: Publication 547: Casualties, Disasters and Thefts
John DeMerceau is an American expatriate entrepreneur, marketing analyst and Web developer. He now lives and works in southeast Asia, where he creates websites and branding/marketing reports for international clients. DeMerceau graduated from Columbia University with a Bachelor of Arts in history.