Is Your Car Insurance Tax Deductible?

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Written by Mandy Sleight Edited by Lequita Westbrooks

Updated April 5, 2024

Car insurance is tax deductible for some people, but not everyone. For example, if you’re self-employed or an armed forces reservist, you can qualify for tax deductions.

Knowing when car insurance is tax deductible and how to deduct expenses on your tax return is crucial. Below, we explain when and how to deduct auto insurance and qualifying business expenses. Not only can you save money on your taxes, but you might also save money on your car insurance.

When Auto Insurance Is Tax Deductible

Knowing when auto insurance is tax deductible isn’t always easy, especially if you use your car for personal use. The Internal Revenue Service (IRS) defines the expenses you can deduct to lower your taxable income. So, if you only drive your vehicle for personal use, you won’t qualify. But if you use it for work, you might.

Here are situations when auto insurance is tax deductible.

You drive your car only for business

If you drive your car only for business reasons, you can usually deduct all your eligible expenses, which we detail in a later section. For example, self-employed taxpayers and business owners who purchase a vehicle for commercial purposes can write off mileage and car expenses like insurance premiums, gas, oil changes, and tolls.

But not all trips are tax deductible. The miles it takes to drive from your home to your primary office location aren’t eligible for a tax deduction. But traveling between business locations, seeing clients, and then returning to the office are deductible. You also can’t deduct expenses your employer reimburses you for.

You use your car for business and pleasure

You’ll fall into this category if you drive your car for both business and personal purposes. For instance, you might own an Airbnb, deliver pizzas, or drive for a rideshare company like Uber or Lyft and drive the vehicle for personal use the rest of the time.

In this case, you can only deduct eligible expenses for business use of your car. That means if you drive 80% for business and 20% for pleasure, you can only deduct 80% of your eligible auto expenses. You can’t deduct car insurance costs or other expenses if you use the car entirely for personal use.

You’re an employee

Before the Tax Cuts and Jobs Act (TCJA) of 2017, W-2 employees could deduct eligible work expenses their employer didn’t reimburse. But the mileage deduction rules and the ability for employees to deduct business expenses changed after the TCJA.

Now, only specific people are eligible to deduct mileage, car insurance, and other unreimbursed expenses:

• Self-employed people, including small business owners, independent contractors, and people who drive for rideshare companies
• People traveling for medical appointments or completing volunteer work
• Armed forces reservists, qualified performing artists, and fee-based state and local government officials

How to Deduct Car Insurance on Your Taxes

You can deduct car-related expenses, including car insurance, using the “standard mileage” method or the “actual vehicle expenses” method. We’ll cover each in more detail below. Whichever method you use, tracking your mileage and other expenses throughout the year is crucial for making reporting your deductions easier.

If you use your vehicle for business and pleasure, you must prorate the expenses. For example, if you use your car for business 70% of the time, you can deduct only 70% of eligible expenses. You don’t need to prorate if you use the vehicle 100% for business. You’d deduct tolls and parking fees for business purposes separately.

Standard mileage rate

If you’re a self-employed worker or business owner, you can take a standard mileage deduction at $0.655 per mile for the 2023 tax year. To calculate your deduction, multiply the number of miles you drove for business throughout the year by 0.655.

For example, if you drove 10,000 miles in 2023, you can calculate your mileage deduction like this: 10,000 x 0.655 = $6,550.

Keep in mind that you can’t deduct car insurance premiums if you use the standard mileage rate method. You also must use this method the first year you take the deduction if you’re using a personal vehicle. If you decide to switch to the actual vehicle expenses method later, specific depreciation rules apply.

Actual vehicle expenses

Your other option is the actual expense method. Using this method allows you to deduct auto insurance premiums, as well as:

• Registration licenses and fees
• Tires
• Fuel
• Oil
• Garage rent
• Depreciation
• Car repairs
• Lease payments or loan interest

You must track your miles as you drive by logging them on paper, using an app, or your computer. It’s also important to keep receipts for all eligible expenses, including tolls and parking fees.

If you choose the actual expense method the first year you use your vehicle for business, you must continue to use it the entire time you make deductions for that car.

Qualifying Business Expenses Related to Auto Insurance

To take advantage of the auto insurance tax deduction, you must understand what’s considered a business expense. Keep in mind that if you take the standard mileage deduction, you can’t deduct actual expenses from your tax return.

You’ll have to document your costs and mileage throughout the year and prorate eligible expenses if you use your vehicle for personal reasons.

The table below breaks down the difference between business and nonbusiness expenses and what you can typically deduct from your taxes (in addition to your auto premium).

Car insuranceSales tax

Tips for Writing Off Your Car Insurance Costs

Writing off your car insurance costs and other eligible expenses is a great way to lower your taxable income so you can keep more of your hard-earned money. Here are four tips to help:

• Track your mileage: You must track your mileage throughout the year. You can use a mileage tracking app, write down your mileage for each trip, or use an Excel or Google spreadsheet.
• Separate personal from business usage: If you use your car for both, keep receipts for all eligible expenses, such as fuel, tolls, parking fees, car insurance, and registration expenses, to make prorating your business usage easier.
• Complete the right tax forms: If you’re doing your taxes yourself, make sure you’re completing the right forms. For example, Schedule C is for sole proprietors; Form 2106 is for employee business expenses, and Form 4684 is for vehicle thefts or totaled vehicles.
• Contact a tax expert: Taxes can be complicated when writing off business expenses — and getting it wrong at tax time could be costly. If you’re unsure about filling out your own tax forms or have questions, it’s best to consult a tax expert, such as a Certified Public Accountant (CPA), or the IRS website.

FAQs About Car Insurance and Taxes

Taxes can be confusing, especially when it comes to deducting car insurance and other related expenses. Here are answers to the most common questions about car insurance and taxes.

Is car insurance tax deductible for self-employed people only?

No. Armed forces reservists, fee-basis state and local government employees, and performing artists can also qualify for a car insurance tax deduction. Knowledgeable tax pros can determine if you qualify for an auto insurance write-off.

Can you write off your auto insurance deductible?

It’s possible. You might be able to write off your auto insurance deductible if your insurer declares your vehicle totaled or stolen. But you must meet certain criteria, like covering costs over $100 or 10% of your adjusted gross income (AGI). Speak with your accountant to find out if you’re eligible for the deduction.

Do you need a commercial auto policy for tax reasons?

No. You can have a personal auto policy and write off part of your insurance premium if you use your vehicle for business-related purposes. But depending on your business and how you use your vehicle, you might need a commercial policy to ensure you’re covered if you get into an accident.

Do you need to itemize your car-related tax deductions?

No. You can claim car-related tax deductions if you itemize your deductions or take the standard deduction. Typically, you can claim these deductions on your Schedule C (Form 1040) Profit or Loss from Business form, not the Schedule A (Form 1040) Itemized Deductions form.

Can you deduct a totaled or stolen vehicle on your tax return?

Yes. Vehicles totaled in federally declared disasters, such as hurricanes or earthquakes, may be eligible for a deduction as a loss on your tax return for the amount your insurer doesn’t pay. You might also qualify if someone steals your car.

Sources

1. Internal Revenue Service, “Publication 463 (2023), Travel, Gift, and Car Expenses,” Accessed March 27, 2024.
2. Internal Revenue Service, “Topic no. 510, Business use of car,” Accessed March 27, 2024.
3. Internal Revenue Service, “Topic no. 515, Casualty, disaster, and theft losses,” Accessed March 27, 2024.

Mandy Sleight Auto Insurance Writer

Mandy Sleight has over 15 years of insurance knowledge and expertise in auto, home, life, health, pet, supplemental benefits, and other insurance products. She is a sought-after insurance expert, appearing in Bankrate.com, Moneygeek.com, U.S. News & World Report, Reviews.com, CNET, and other publications. She uses her background and experience working for well-known insurance companies like State Farm and Nationwide Insurance to create engaging and easy-to-understand content to help readers make smarter insurance choices that have a positive effect on their budgets and finances.