Vehicle Payoff and tax

[Nalex]

Good afternoon,

I have an LLC and use my car 80% of the time for my consulting business. I just paid off the car in full, can I claim the payoff amount on my 2022 taxes?

[Mike9241 · Accepted solution]

assuming a single-member LLC and that you or the LLC had title to the vehicle, the answer is no. you should have been depreciating the vehicle during the period of ownership based on its total cost and % of business use. the only part of the payoff that would be deductible based on % of business use is the interest. if you own it and have not been depreciating it see a tax pro so this can get fixed. if you leased the vehicle then there may be an issue as to whether or not it should have been treated as a capital lease (as if you purchased it). 

For tax purposes, a lease is considered a capital lease when the amount of the lease is $50,000 or more, the useful life of the asset is two or more years, and the lease meets at least one of these criteria:

• Transfers owner of the personal property to the lessee by the end of the lease term
• Contains an option to buy at a bargain price
• The lease term is 75% or more of the estimated useful life of the property
• The Net present value of the property is 90% or more of the fair market value of the property

[Carl]

No. A payoff is never deductible.

Typically, when a vehicle is not 100% business use, you claim the "per mile" deduction to deduct for each "business" mile driven. The vehicleis entered in the Business Vehicle asset section. If so, you're probably already claiming the per-mile deduction. For 2022 you'd be claiming 58.5 cents per mile, of which 26 cents per mile is depreciation.

You may be able to claim a percentage of the interest paid on the loan for the entire tax year, equal to the percentage of business use for that year.

Basically, when you enter the business miles driven, the program (not you) will do the math to figure the amount you can actually claim against the business income.