Can you write off car insurance for tax purposes? Yes, you can, but only in some circumstances.
Unfortunately, few people fit into those categories. This is because most of the expenses associated with owning and driving a vehicle are considered personal and aren’t tax deductible — including car insurance premiums and deductibles.
There are exceptions. For example, if you use your car for business, you might be able to write off your auto insurance costs at tax time.
In this article, you will learn:
- When you can claim car insurance on taxes
- If you can deduct your auto insurance deductible from your taxes
- How to write off your car insurance costs
When can you deduct car insurance on taxes?
According to the IRS, if you use your car strictly for job or business purposes, and only for those purposes, you may be able to deduct the cost of your auto insurance premiums from your taxes.
Here are a few examples of people who might be able to write off their car insurance costs on their tax returns:
- A self-employed person who uses a van, car or truck strictly for business purposes.
- A W-2 employee-owner with a vehicle used exclusively for job-related travel.
Can you deduct car insurance for split-use vehicles?
If you use your vehicle for both business and personal reasons, you may be able to deduct some of your car insurance costs from your taxes. So, if you use your vehicle for business purposes 50% of the time, half of your insurance premiums should be eligible for tax deduction.
A few examples of taxpayers who might be able to write off auto insurance for split-use vehicles:
- Uber and Lyft drivers.
- Self-employed taxpayers who use a vehicle for personal and work-related travel.
- Rental or Airbnb owners who travel to and from a rental property for maintenance or management purposes.
Something to keep in mind is that, according to the IRS, “you may deduct only the cost of its business use and you must keep records to support your claim.”
When can’t you deduct auto insurance on taxes?
Here are some instances when you can’t deduct car insurance costs from your taxes.
- Driving your car back and forth to work doesn’t qualify as a business expense for tax purposes.
- You can’t write off your auto insurance costs if your employer or business already reimburses you for them.
- If you’re a W-2 employee and the vehicle’s use is considered an “unreimbursed employee expense,” your insurance premiums aren’t deductible.
Deducting car insurance and the Tax Cuts and Jobs Act
It is no longer possible to deduct car insurance from your personal tax return unless you’re self-employed, you own a business or you qualify for an exception.
This is due to the Tax Cuts and Jobs Act (TCJA) of 2017, which significantly changed how millions of Americans file their taxes.
How has the TCJA specifically impacted the ability of people to write off auto insurance costs? According to Logan Allec, CPA and owner of the finance blog Money Done Right, it “eliminated unreimbursed vehicle expense deductions, including auto insurance deductions, for W-2 employees for tax year 2018 through tax year 2025.
“There are some very narrow exceptions for four specific fields: armed forces reservists, certain kinds of performing artists, fee-based government officials and employees with impairment-related work expenses,” Allec added. “But these are obviously few and far between.”
Can you deduct your car insurance deductible?
You can’t deduct your car insurance deductible from your taxes, generally speaking.
That shouldn’t come as too much of a surprise after what you’ve read so far. For most people, car insurance deductibles are personal rather than business expenses, and personal expenses usually can’t be written off in this regard.
There is an exception to this rule: you can deduct property losses that occur within a federal disaster zone from your taxes.
Imagine a natural disaster like a hurricane damages your vehicle. If the president declares where you live to be a federally qualified disaster area, you can write off the loss on your taxes.
Even then there’s a catch, of course. If your insurance company covers the repairs to your vehicle, or reimburses you for them after the fact, you can only write off out-of-pocket expenses, like your deductible. You also must subtract $500 from your loss before it qualifies as a deduction.
How can I write off my car insurance costs?
To deduct your car insurance costs from your taxes, you should:
- Track your mileage
- Complete the right form for your situation
- Chat with a tax expert
Before you do the above, though, you’ll want to make sure it’s worth your while to itemize your tax return.
Currently, the IRS standard deduction is:
- $12,000 for individuals
- $18,000 for heads of household
- $24,000 for married couples filing jointly
For itemizing your expenses to be worth it, you need to be able to write off more than the amount of your standard deduction. Otherwise, it’s often better to just take the standard deduction and save yourself the hassle. (Note: you can deduct losses that occurred in a federally qualified disaster area without needing to itemize your full tax return.)
If you’re eligible to deduct all or part of your car insurance premium and you’ve decided that it’s financially wise to do so, follow these steps.
1. Keep a paper trail
You need to track how often you use your vehicle for business purposes to write off your car insurance costs.
You’ll use the number you come up with here to calculate the percentage of your auto insurance premium that you can deduct from your taxes.
You can use an app or old-fashioned pen and paper to track your mileage or the time you spend driving for business. Whatever method you use, be sure to hang on to your records for at least three years, just in case the IRS decides to audit your tax return.
2. Itemize your deductions properly
The form you need to fill out to deduct car insurance premiums from your taxes varies depending on your type of employment. Here’s a breakdown.
If you’re self-employed, you will include your insurance deduction amount on the Schedule C portion of your tax return.
If you’re a W-2 employee of a company and you’re writing off unreimbursed car insurance costs, you will need to fill out a Form 2106 and add it to your tax return.
“Only employees in the four specific fields mentioned in the tax code can still deduct unreimbursed employee expenses,” according to Money Done Right’s Allec. “Most employees who previously took a deduction for unreimbursed vehicle costs, insurance or otherwise, will be unable to do so.”
If you are writing off your car insurance deductible as a qualified disaster loss, you will need to complete Form 4684 and attach it to your tax return.
3. Talk to a tax pro
Before you write off your car insurance premium or deductible, consider talking to a tax expert. They can answer questions, give advice and make sure you file your taxes the right way. If you file a deduction you aren’t qualified to claim, it could come back to bite you in the long run.
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