are car insurance deductibles tax deductible?
Your car insurance premium and your auto insurance deductible are the two main forms of payment you'll have to make related to insuring your car, and they can both be written off, or deducted, from your taxes, under certain circumstances.
Your car insurance premium is tax-exempt only if you use your car for business, and you can subtract your insurance deductible from your taxes, but the process can be complicated.
For instance, you can't simply subtract your insurance deductible from your taxable income. Read on to learn more about when car insurance is tax-deductible, and how to file your tax forms accordingly.
When is Your Auto Insurance Premium Tax Deductible?
If you own a car you use exclusively for business purposes, then all costs associated with the vehicle— including gas, maintenance and insurance premiums—are tax-deductible as business expenses. For example, if you are a self-employed contractor and have a truck, which can be expensive to insure to carry your supplies from place to place, then you may deduct your car insurance premium from your taxes.
There are some crucial nuances for you to know before you write off your car insurance.
- A car you use to commute to and from work doesn't qualify as a business expense, and therefore does not qualify as tax-exempt. As such, you can't write off any car-related expenses related to commuting.
- You also will not be able to write off your car insurance if your business or employer already reimburses you for the costs.
You Can Partially Write Off Car Insurance If Your Car is Used for Both Business and Personal Use
If you drive a car for both personal and business uses, you may deduct your insurance costs from your taxes, for the percentage of the time you use your car for business. If half the time you use your car is for business, then you may deduct 50% of the yearly auto insurance costs on your taxes.
People who don't use a car for business, but may occasionally need to drive somewhere for their employer, can also take advantage of this tax break. For example, if your boss asks you to attend a meeting somewhere that requires you to drive to the location, the cost of insurance for the time of the business trip is deductible. It will not be deductible, however, if your employer reimburses you for the insurance.
Airbnb Owners and Renters
If you operate an Airbnb or rent a home, any travel expenses related to maintaining the home are tax-deductible. So if you drive to the house for the purpose of upkeep, cleaning or to let in a guest, you are allowed to write off the insurance for that trip.
Keep in mind that if you only do this once in a while, or do not drive far, the deduction will not amount to much since it will ultimately be a small part of your total driving throughout the year. But if you frequently make trips to your rental property, the savings can add up quickly.
Uber and Lyft Drivers
If you drive for a rideshare company, you may need to have special insurance to protect yourself and your passengers, and for the time you use your car as taxi, your auto insurance is deductible.
If you are required by state law to have rideshare insurance that goes into effect while you are driving, you can deduct the entire premium for that coverage from your taxes.
In addition, if your state and insurance company allow you to use your own personal insurance while ridesharing, you can calculate your deductible time by dividing your monthly car insurance payment by the percent of time you use the car for ridesharing.
For example, if you drive two hours every day getting groceries, picking up kids, etc., and then drive three hours for Lyft at night, you can say you use your car 60% of the time for ridesharing (three Lyft hours/five total hours per day). So if your monthly car insurance premium is $120, you can deduct $72 per month or $864 per year.
Writing Off Your Car Insurance Deductible
Starting in the 2018 tax year, you are generally unable to deduct personal losses due to casualty or theft, regardless of whether or not the loss is covered by an insurance policy. There is one exception: property losses that occur within one of a few federally-mandated disaster areas, and are a direct result of the disaster. For example, in 2017, the only disasters which would have qualified under the new rules are Hurricane Harvey, Hurricane Irma, Hurricane Maria, and the California wildfires.
If you experience a financial loss involving your car as a result of one of these disasters, you can write it off on your taxes. However, you can't write off any loss for which you were compensated for, such as by insurance. In other words, you can only do this for the dollar amount you actually lost. This typically means that you can write off your car insurance deductible; or, if your car is damaged in a way that is not covered by your insurance.
Additionally, you must subtract $500 from the amount of loss in order to determine how much you are able to write off.
For example, suppose you had a car worth $15,000, and it was destroyed in a wildfire. That type of damage would be covered under comprehensive coverage, which is optional.
- If you had comprehensive coverage with a deductible of $1,000, your insurance provider would pay you $14,000. Then subtract $500, and the remaining $500 would be tax deductible.
- However, if you chose not to have comprehensive coverage on your car, you wouldn't receive any compensation from your insurer. But you'd be able to write off the entire value of the car, minus $500, as a loss: in this case, it'd be $14,500.
Keep Accurate Records for Tax Filing
If you qualify to deduct car insurance expenses from your yearly tax bill, then you need to make an effort to keep good records. One of the key perks of rideshare driving is flexibility: You may drive five hours one day, one hour the next and seven another day.
If you drive sporadically for your business, knowing how much you drove during the year can be difficult unless you are keeping steady track throughout the year. Write down every time you were driving on the clock, and also have a good estimate of all the times you were off the clock.
And you should hold onto those records of your driving history for at least three years. Should the IRS ever ask you to justify your car insurance tax write-offs, you will need to be able to show your records.
How to Deduct Your Car Insurance on Your Tax Forms
If you are self-employed, including as a rideshare driver, you will need to file a Schedule C form, which includes a section to include your insurance expenses to deduct. If your business driving was for an employer that you receive a W-2 from, you will need to fill out a Form 2106, Employee Business Expenses — assuming your company did not already reimburse you for the costs.
Below, see where on the Schedule C you can fill in your car insurance expenses information.
Keep in mind that you're only eligible to write off insurance expenses if the total amount you're able to deduct exceeds the standard deduction.
However, car insurance expenses rarely amount to more than a couple thousand dollars a year. As a result, you would likely need to make several other deductions, such as on other business expenses, mortgage interest or certain education expenses, to be eligible for itemized deductions.
Consult Your Accountant if You're Unsure
You want to be sure you do your taxes correctly the first time: A few dollars saved is not worth the time and expense of a possible tax audit. If you're unsure about whether you're eligible to deduct your car insurance from your income taxes, consult an accountant or someone well-versed in tax law.
If you're doing your taxes using services like TurboTax, the company will have on-call customer service with trained accountants ready to answer your questions. If you use your own personal accountant, be sure to consult with them.
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