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Understanding the New IRS Rules on Deducting Car Loan Interest
As the new year begins, many taxpayers are learning about changes introduced under the latest federal tax law—one of which involves the ability to deduct car loan interest in certain situations. According to a recent Forbes article, the IRS has released new guidance clarifying how and when vehicle loan interest may be deductible. While this change won’t apply to everyone, it could offer meaningful tax relief for some borrowers, especially those using their vehicles for qualified purposes.
Under the updated rules, car loan interest may be deductible if the vehicle is used for business or income-producing activities, such as self-employment or certain side businesses. Personal-use vehicles, including those used solely for commuting, generally do not qualify. The IRS guidance also outlines how borrowers must document vehicle use and properly allocate interest between personal and business use if the car serves both purposes. This clarification is meant to reduce confusion and help taxpayers accurately claim deductions while staying compliant with IRS requirements.
Quick FAQs:
What does this mean for me?
This change may allow you to deduct a portion of your car loan interest if you use your vehicle for business or income-related activities. It does not create a new deduction for personal auto loans, but it does provide clearer rules for those who may already qualify.
Am I qualified?
You may qualify if you use your vehicle for business purposes, such as self-employment, freelance work, or running a small business. If the vehicle is used for both business and personal reasons, eligibility depends on how much of the vehicle’s use is business-related. Personal-only use generally does not qualify.
How do I compute this for my taxes?
Typically, you would calculate the percentage of business use for your vehicle and apply that same percentage to the total interest paid on your auto loan during the year. Because tax situations can vary widely, it’s strongly recommended to consult a qualified tax professional or CPA to ensure calculations are accurate and compliant with IRS requirements.
What if I have more questions?
If you’re unsure how these rules apply to you, a tax professional can help determine eligibility and proper reporting. If your questions are related to your existing PFCU auto loans or have plans to refinance with us, we are here to help.
At Pasadena FCU, we believe informed members make stronger financial choices. If you have any questions or need assistance, reach out to us via chat on our website, stop in at one of our branches, or call us at (800) 445-7328.