April 18, 2022

Is Car Insurance Tax Deductible?

If you use your car for business purposes, you may qualify for a tax deduction.

If you use your car solely for personal reasons, then your car insurance is not tax deductible. However, if you use your car for business purposes, in some cases you can write off your car insurance. Let’s learn about the requirements for deducting your car insurance for business use.

Is Your Car Insurance Tax Deductible?

One frequently asked auto insurance question is, “Can I write off my car insurance premiums on my annual tax return?” The answer is that it depends on how you use your vehicle. You may be able to write your car insurance off if you use your vehicle for these business purposes:

  • Driving to conferences
  • Picking up or delivering supplies
  • Visiting clients

Consequently, you cannot deduct from your taxes the commute to and from work.

Using your car for business purposes isn’t enough to claim your car insurance on your taxes. You must have auto-related costs that are more than 2 percent of your adjusted gross income (AGI). If you qualify for a car insurance tax deduction, you can deduct these items:

  • Car repairs
  • Depreciating asset
  • Gas refills and oil changes
  • Garage rental costs
  • Lease payments
  • Registration and license fees
  • New tires
  • Parking fees

Car insurance tax deductibles can also apply to these individuals:

  • Armed forces reservists traveling up to 100 miles away from home
  • State and/or local government officials
  • Qualified performing artists

Self-Employed

Entrepreneurs who use their cars for their business may be able to qualify for a car insurance tax deduction.

Business and Personal Use

You can qualify for a tax deduction if you use your car for both professional and personal use, but you’ll need to divide the costs based on the number of miles you drove for professional use and the miles you drove for personal use.

Expenses Related to Car Insurance Claims

There is one exception to the business/personal use law: Those who only use their cars for personal use may be able to write off their car insurance costs if they have expenses related to car insurance claims, such as a vehicle loss or auto theft.

NOTE:

Car insurance covers car theft only if you have comprehensive coverage. If you only have minimum coverage, you cannot file an auto burglary insurance claim.

You must declare your vehicle as a total loss — or experienced car theft — to qualify for a tax deduction. The incidents can’t be the result of your negligence and you would need to file a claim.

If you don’t get reimbursed for all of your losses, you can deduct the difference between the loss and your policy’s limits, plus your deductible cost. Finally, the costs must be greater than $100 and more than 10 percent of your AGI.1

Unreimbursed Employee Expenses

If you used your car for business purposes and your employer never reimbursed you, you can deduct these related expenses.

Is Mileage Tax Deductible?

Mileage is tax deductible, but only if you choose to deduct it over the cost of your car insurance premiums with the actual vehicle expenses method. If you choose mileage, you can deduct 56 cents per mile plus the cost of tolls and parking fees. Otherwise, you can deduct actual vehicle expenses, which includes your car insurance premiums.

How to Deduct Your Car Insurance

Follow these steps to deduct your car insurance while filing your taxes:

  1. Calculate your deduction. If you use your car for business purposes only, you won’t need to prorate your deduction. Just add up your costs of fuel and oil, repairs, depreciation, lease payment, tolls, parking fees, and license and registration fees. However, if you use your car for both business and pleasure, split the costs based on the number of miles you drove for each purpose.2
  2. Fill out Schedule C. If you’re self-employed, fill out the Schedule C form at https://www.irs.gov/pub/irs-pdf/f1040sc.pdf.
  3. Fill out Form 2106. For scenarios other than the aforementioned, fill out Form 2106 at https://www.irs.gov/pub/irs-pdf/f2106.pdf.
  4. Choose between premiums and mileage. Decide whether you want to deduct your insurance premiums or mileage. Speak to a tax professional if you’re unsure how much to claim.

How to Keep Accurate Records

When it comes to tax deductions, you’ll need to collect information throughout the year to report the correct write-off amount. Here are some tips for staying organized to deduct the highest possible amount:

  1. Use a mileage-tracking app. We recommend using a mileage-tracking app if you decide to deduct by mileage, such as Everlance, Stride, or MileIQ.
  2. Keep receipts. Even if you’ve already written down your expenses, keep the receipts just in case, including receipts for repairs and gas. While itemized deductions aren’t required, you still want to have all of the data handy.
  3. Keep other records. It’s best to keep your driving history records for a three-year minimum, even after you’ve filed your taxes.3

What Is Business-Use Car Insurance?

Personal auto insurance policies correspond to your personal use, while a business owner’s policy applies to commercial driving. For any cars you use for business, you need business-use car insurance. Here are some specifics about business-use car insurance:

  • Applications: This applies to any cars your business owns, leases, hires, or uses.
  • Limits: We recommend obtaining limits from $500,000 to $1 million.
  • Coverages: You can have different coverages and limits for different vehicles.4

TIP:

To get started with business-use car insurance, fill out a business auto coverage form from your insurance company.

Conclusion

It’s worth the time and effort to organize your receipts and track your miles to receive a tax deduction for your vehicle for qualified business tasks. Even if you don’t enjoy filing your taxes, it may be less painful if you are obtaining a refund for these expenses.

Citations

  1. Find out if your car insurance is tax deductible. Nationwide. (2022).
    https://www.nationwide.com/lc/resources/auto-insurance/articles/is-auto-insurance-tax-deductible

  2. Is car insurance tax deductible? H&R Block. (2022).
    https://www.hrblock.com/tax-center/filing/adjustments-and-deductions/is-car-insurance-tax-deductible/

  3. Is car insurance tax deductible? Progressive. (2022).
    https://www.progressive.com/answers/is-car-insurance-tax-deductible/

  4. Insuring Your Business: Small Business Owners’ Guide to Insurance. Insurance Information Institute. (2022).
    https://www.iii.org/publications/insuring-your-business-small-business-owners-guide-to-insurance/specific-coverages/business-vehicle-insurance