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Is Auto Insurance Tax Deductible?

When you’re filing taxes, it’s natural to try to deduct as many expenses as possible. Does car insurance qualify?

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Unfortunately, most of the expenses associated with owning a vehicle are considered personal. Translation: they are not tax deductible.

When it comes to your car insurance premiums and deductibles, the average person probably won’t be able to write those off their taxes either. However, there are some exceptions. Claiming insurance costs on your taxes may be possible, if you fit into certain categories.

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 those purposes), you may be able to deduct the vehicle’s cost of operation. This includes — you guessed it — the cost of your auto insurance premiums.

Here are a few examples of people who might be able to write off their auto insurance costs on their tax return:

  • A self-employed person who uses a van/car/truck strictly for business purposes
  • An S corporation, W-2 employee-owner with a vehicle used exclusively for job-related travel

Can You Deduct Car Insurance for Split-Use Vehicles?

What if, like many people, you split the use of your car between personal and business purposes? According to the IRS, “you may deduct only the cost of its business use and you must keep records to support your claim.”

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 50% of the time you drive it for business purposes, half of your insurance premiums should be eligible for tax deduction.

Here are a few examples of people who might fall into this split-use category.

  • Uber and Lyft Drivers
  • Self-employed tax payers who use a vehicle for personal and work-related travel
  • Rental/Airbnb Owners who travel to and from a rental property for maintenance or management purposes

When You Aren’t Allowed to Deduct Auto Insurance

Before you decide to itemize your insurance on your tax return, consider instances when it’s not okay to deduct the cost.

  • Using a car to get you back and forth to work doesn’t qualify as a business expense.
  • 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

Congress recently passed the Tax Cuts and Jobs Act (TCJA). The new tax law introduced significant changes to how millions of Americans file their taxes.

Logan Allec, CPA and owner of the finance blog Money Done Right, confirms that “the Tax Cuts & Jobs Act eliminated unreimbursed vehicle expense deductions, including auto insurance deductions, for W-2 employees for tax year 2018 through tax year 2025.”

Allen goes on to explain, “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 – but these are obviously few and far between.”

So, as of January 1, 2018, you will no longer be able to deduct car insurance from your personal tax return. Unless you’re self-employed, own a business, or qualify for an exception.

Can You Deduct Your Deductible?

A car insurance deductible is the amount of money you pay after a claim before your insurance company kicks in for the rest of the bill. For most of the people, your car insurance deductible is a personal expense. Therefore, it can’t be written off your taxes.

However, there is an exception to the rule. Property losses that occur within a federal disaster zone can be deducted from your taxes.

Imagine your vehicle was damaged during a natural disaster like a hurricane, for example. If the president declares your area to be a federally qualified disaster area, you can write the loss off on your taxes.

Of course, there’s a catch. If your insurance company covers the repairs to your vehicle (or reimburses you after the fact), you can only write off your out-of-pocket expenses (like your deductible). You also must subtract $500 from your loss before it qualifies as a deduction.

How to Write Off Your Car Insurance Costs

Even if you qualify to deduct your car insurance premium from your taxes, you’ll still need to determine whether it’s worth it to itemize your tax return. Beginning in 2018 (the 2019 tax filing season), the IRS standard deduction has increased to the following amounts:

  • $12,000 for Individuals
  • $18,000 for Heads of Household
  • $24,000 for Married Couples Filing Jointly

So, 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 simpler to just take the standard deduction and save yourself the hassle. (Note: Losses which occurred in federally-qualified disaster areas can be deducted without the need to itemize your full tax return.)

If you’re eligible to deduct all or part of your car insurance premium and have decided that it’s financially wise to do so, here are the steps you’ll need to complete.

Keep a paper trail

This is especially important if you use for vehicle for both personal and business purposes. You need to track how often you use your vehicle for business. That number can be used to calculate the percentage of your auto insurance premium you’re opting to deduct from your taxes. This number is also necessary to justify to the IRS in the event of an audit.

You can use an app or old-fashioned pen and paper to track your mileage and/or time spent driving on the clock. Whatever you use, be sure to hang on to your records for at least three years, just in case the IRS ever decides to audit your tax return.

Itemize your deductions

The form you will need to fill out to deduct car insurance premiums from your taxes will vary based upon your type of employment. Here’s a breakdown.

Schedule C
If you’re self-employed, you can add in your insurance deduction amount on Schedule C of your tax return.

Form 2106
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. Allec adds, “Remember, only employees in the four specific field mentioned in the Tax Code can still deduct unreimbursed employee expenses. Most employees who previously took a deduction for unreimbursed vehicle costs, insurance or otherwise, will be unable to do so.”

Form 4684
If you are deducting your car insurance deductible as a qualified disaster loss, you will need to complete Form 4684 and attach it to your tax return.

Talk to a Tax Pro

Before you pull the trigger and decide to write off your insurance premium, it’s a good idea to talk to a tax expert. It’s better to ask for advice and make sure you file your taxes the right way upfront. 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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