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Is the interest paid on car financing tax deductible for a business?


Expert Abraham Itani's Answer:

ou can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.

To be deductible,  a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.


You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. You can deduct actual expenses or the standard mileage rate , as well as business-related tolls and parking. If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses.



As for Interest: you can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. Interest relates to your business if you use the proceeds of the loan for a business expense. It does not matter what type of property secures the loan. You can deduct interest on a debt only if you meet all of the following requirements.

  •   You are legally liable for that debt.

  Both you and the lender intend that the debt be repaid.

  You and the lender have a true debtor-creditor relationship.


As an example: In 2011, you paid $600 interest on a car loan. During 2011, you used the car 60% for business and 40% for personal purposes. You are claiming actual expenses on the car. You can only deduct $360 (60% × $600) for 2010 on Schedule C or C-EZ. The remaining interest of $240 is a nondeductible personal expense.



Abraham Itani, CPA

New Jersey

20+ yrs experience

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