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Bought new car in Dec 2016, can I write off the finance charge? Or anything else?

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Bought new car in Dec 2016, can I write off the finance charge? Or anything else?

How a new car purchase is treated for income tax purposes will depend on the intended use of the car (business or personal), as well as on the type of car you bought.  Please allow us to explain further, as there is a quite a bit of information you should know.

If you are using the car for business (income generating) purposes, such as a self-employment activity like being an Uber cab driver, or an independent contractor, for example, then you may be entitled to a tax deduction (called an IRC Section 179 expensing deduction) for the automobile purchase and any financing charges (but there are lots of rules and "what ifs" that go along with this).  Ongoing expenses, such as annual costs of operation, can also be tax-deductible as ordinary business expenses.

The only current and active federal tax credit of which we are aware however, that applies to purchasing a new car as a non-business vehicle, is the Alternative Motor Vehicle Credit.  This covers only certain purely electric cars, as well as cars that are powered by hydrogen-oxygen fuel cells.

You can learn more about that tax credit here, at the following IRS webpages, where the tax credits and qualifying vehicles are explained:




There is no direct tax deduction for vehicle registration fees on a personal tax return.  However, if you live in a state that imposes an excise tax amount, and that is part of the registration process, then the excise tax can be deducted, but not the whole amount of the cost of registration.

The legal reasoning is as follows.  The IRS only allows that portion of a state registration fee that is based on the value of the vehicle to be included toward your other itemized deductions.  Any flat fee portion doesn't count.  This is why there are some 20+ states whose residents can potentially benefit from the deduction; but the remainder cannot:  their states do not charge vehicle registration fees by value, and instead charge flat fees only.

There is a list of these qualifying states built-into the TurboTax software.  A graphical image of this chart of states is also shown in one of the screen-capture images at the bottom of this answer (simply click to enlarge).

If your state is on the list, then you can enter the vehicle excise tax amount in TurboTax.  To do so, you will want to have your tax return open and locate the Search / Find box on your screen.  Next, type in the exact search string "vehicle registration fees" and then click on the Jump To link that should appear beneath.  This will take you to the appropriate data entry place in the program.  Please see the screen-capture images below for a visual illustration of the process.

That said, there may still be another tax benefit for which you can qualify.

If you live in a state where you paid sales tax on your new car, and if you also itemize your tax deductions (on Form 1040, Schedule A) rather than taking the standard deduction, then the sales tax cost of the car can be separately added to the rest of your sales taxes paid, in order to calculate your allowable sales tax deduction.  So that could be a tax benefit.

You would find this section, in TurboTax, among the Deductions & Credits portion of the interview.  Please see the attached screen-capture image for an illustration.  You can also type the words "sales tax car" into the Find / Search box on your TurboTax screen, and then click the Jump To link that should appear beneath -- that will take you to the appropriate TurboTax page.

Finally, it is also important to keep in mind that you (or anyone claiming this deduction) may or may not actually see any net tax benefit from including these items on your tax return.  The reason for this is that you must have enough itemized deductions (in total) to exceed the standard deduction available to all taxpayers.  Since more than 2 in 3 taxpayers do not, most people end up taking the (more valuable) standard deduction, rather than itemizing deductions.  If you input all your data carefully, however, the TurboTax software will make that determination for you.

As was indicated previously above, unless this is a business vehicle, in which case interest and loan charges paid can be considered as valid business expenses, any finance charges or automobile loan fees are not tax deductible items, unfortunately.

Thanks for asking this question, and please drive safely.

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