If you use your car for business, it’s possible that auto insurance is a write-off on your federal income taxes. Whether you can write off your car insurance depends on how you use the vehicle.
If you are self-employed, you can write off auto insurance premiums based on the percentage of time you spend using a vehicle for business.
Understanding Write-Off Categories
The IRS permits you to deduct the full cost of your auto insurance if you only use your car for work. That doesn’t mean you only use your car to go back and forth to your office. The vehicle’s use must include active business use, such as a self-employed contractor who uses his truck to carry equipment and supplies between job locations. In addition to auto insurance, you can write off other expenses, such as the cost of fuel, parking, tolls and repairs.
Driving for Business and Personal Use
Most people will use their car for both business and personal purposes. That doesn’t mean you can’t write off part of your auto insurance premiums on your taxes, but the IRS wants careful records of how much time you spend driving for business. If you use your car half of the time for business and half of the time for personal pursuits, you can deduct half of your auto insurance premiums. If you only drive your car for personal use, auto insurance is not deductible. Any self-employed person using their vehicle for business purposes should keep a logbook in the car, or use an app to record every tax deductible trip. If you fail to satisfy this requirement, the IRS may penalize you or charge you for back taxes
Understanding Self-Employed vs. Employee
Before the Tax Cuts and Jobs Act was passed, employees who used their own vehicle for business but were not reimbursed for their expenses by their employer could deduct the business portion of their vehicle use on their federal income tax return. The new law eliminated that deduction for employees in 2018 and beyond, except in the rare cases where such expenses exceed 2 percent of their adjusted gross income.
Theft or Loss
If your car was stolen or involved in an accident with your insurance company declaring it a total loss, you might deduct the cost of the car whether or not it is used for business or purely personally. You must file a car insurance claim to receive this deduction. If the accident was your fault, you cannot take this deduction, and the value of the car must prove more than 10 percent of your adjusted gross income. You may also be able to deduct the amount of your auto insurance deductible.
- Nationwide: Is Car Insurance Tax Deductible?
- Value Penguin: When is Car Insurance Tax Deductible?
- Erie Insurance: Is Auto Insurance Tax Deductible? It Depends
- IRS: Topic Number 510 - Business Use of Car
- IRS: 2018 Instructions for Schedule A (Form 1040)
- IRS: Publication 529 (2018), Miscellaneous Deductions
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Financial Advisor, Sapling, nj.com and The Nest.