Can I Claim a New Car on My Taxes?

A common misunderstanding is that a new car for personal use is generally tax-deductible. While a personal vehicle purchase typically does not offer a direct deduction, specific circumstances, such as using the vehicle for business or acquiring certain vehicle types, can lead to tax savings.

Personal Vehicle Tax Considerations

Buying a new car primarily for personal use does not usually qualify for a tax deduction. This includes vehicles used for daily commuting between your home and regular workplace, which is considered a personal expense. However, there are limited scenarios where some car-related expenses might be deductible.

One such scenario involves state and local sales tax paid on the vehicle purchase. If you itemize deductions on your federal income tax return, you may be able to deduct these sales taxes. This deduction is part of the overall state and local tax (SALT) deduction, which has a temporary limit. For tax years beginning in 2025, the SALT deduction limit is $40,000 for joint filers, increasing from the previous $10,000 cap.

To claim the sales tax deduction, you must choose to deduct state and local sales taxes instead of state and local income taxes. This election is made on Schedule A. You can use actual sales tax expenses (requiring detailed receipts) or the IRS sales tax tables, adding sales tax paid on major purchases like vehicles.

Business Vehicle Tax Deductions

A new car can offer substantial tax deductions if it is used for business purposes. The amount deductible depends on the percentage of business use and the method chosen for calculating expenses. You must allocate expenses between business and personal use based on mileage, deducting only the business portion.

One common method is the standard mileage rate, which simplifies calculations by allowing a set rate per business mile driven. For 2024, the standard business mileage rate is 67 cents per mile. This rate covers costs such as depreciation, fuel, oil, repairs, insurance, and vehicle registration fees. Using this method requires maintaining accurate records of business mileage, including dates, destinations, and purposes of trips.

Alternatively, you can deduct actual expenses incurred for business use of the vehicle. This method allows for the deduction of specific costs, including fuel, oil, maintenance, tires, insurance, and vehicle registration fees. Depreciation is a significant component, allowing you to recover the vehicle’s cost over its useful life.

Special depreciation rules, such as the Section 179 deduction and bonus depreciation, can accelerate these deductions. Section 179 allows businesses to expense the full purchase price of qualifying property, including vehicles, in the year it is placed in service, up to certain limits. For tax years beginning in 2024, the maximum Section 179 expense deduction is $1,220,000, with a phase-out threshold of $3,050,000. For sport utility vehicles (SUVs) weighing over 6,000 pounds but not more than 14,000 pounds, the maximum Section 179 deduction is capped at $30,500 for 2024.

Bonus depreciation provides an additional first-year deduction for qualifying new and used property. For 2024, the bonus depreciation rate is 60% for eligible assets acquired and placed in service. This rate is scheduled to decrease in subsequent years, dropping to 40% in 2025 and 20% in 2026. Combining Section 179 with bonus depreciation can offer substantial first-year deductions, although Section 179 is generally applied first.

Electric Vehicle Tax Credits

Purchasing a new clean vehicle (e.g., electric vehicle or plug-in hybrid) may qualify for a federal tax credit up to $7,500, regardless of its primary use. The availability and amount of the credit depend on several eligibility requirements for both the vehicle and the buyer.

Vehicle eligibility criteria include battery capacity, with a minimum of 7 kilowatt-hours, and final assembly in North America. The manufacturer’s suggested retail price (MSRP) also plays a role, with limits of $80,000 for vans, SUVs, and pickup trucks, and $55,000 for other passenger vehicles. Furthermore, the vehicle must meet specific battery component and critical mineral sourcing rules.

Buyer eligibility is determined by income limitations. For new clean vehicles, the modified adjusted gross income (MAGI) must be $300,000 or less for joint filers, $225,000 or less for heads of household, or $150,000 or less for other filers. Since January 1, 2024, buyers can transfer the credit to the dealer at the point of sale, effectively reducing the vehicle’s purchase price. The dealer confirms eligibility and credit amount with the IRS.

Required Information for Vehicle Deductions

Claiming vehicle-related tax benefits, especially for business use, requires meticulous record-keeping. An accurate mileage log is essential for any vehicle deduction. This log should detail all business trips, including date, destination, purpose, and beginning and ending odometer readings.

For those deducting actual expenses, comprehensive records of all vehicle-related costs are essential. This includes receipts for fuel, oil changes, maintenance, repairs, tires, insurance premiums, and vehicle registration fees. If you are deducting interest on a car loan for business use, retain all loan documents that show the interest paid.

For depreciation deductions, the original purchase information of the vehicle is necessary. This includes the vehicle’s cost, the date it was placed in service for business use, its make, model, and Vehicle Identification Number (VIN). If claiming the clean vehicle tax credit, you will need specific information from the dealer, such as the VIN, purchase date, and confirmation that the vehicle meets all eligibility criteria.

Reporting Vehicle Tax Benefits

All necessary information and documentation must be accurately reported on the appropriate tax forms. Business vehicle deductions are primarily reported on Form 4562, Depreciation and Amortization. Form 4562 is used to claim depreciation deductions, including Section 179 and bonus depreciation, and to provide information on business vehicle use.

For self-employed individuals, the summarized vehicle expenses from Form 4562, or the standard mileage deduction, are then transferred to Schedule C. The new clean vehicle tax credit is reported on Form 8936, Clean Vehicle Credits. Form 8936 is used to calculate the credit amount based on vehicle and buyer eligibility.

If you are itemizing deductions and claiming the state and local sales tax paid on your new car, this deduction is reported on Schedule A.