Splitting Vehicle Insurance For Taxes

Vehicle insurance can be split for taxes in a few different ways. If you co-own a car, you can split the costs 50/50 or based on the number of miles driven. If you own the car yourself but share it with someone, they can pay you a flat monthly fee or a fee based on mileage. When it comes to tax deductions, if you use your vehicle for business, you may be able to include your car insurance as part of your deduction. However, if you use your vehicle for both business and personal purposes, you will need to split the expenses accordingly.

Calculating vehicle depreciation

There are several methods to calculate vehicle depreciation. One common approach is to use a car depreciation calculator. These calculators use factors such as the vehicle's make and model, age, mileage, and current market value to estimate its depreciation. Websites like Kelley Blue Book, Consumer Reports, and iSeeCars offer tools to determine a vehicle's market value and depreciation rate.

Another way to calculate depreciation is by applying the vehicle's depreciation rate (average, high, or low) and considering the number of years you plan to own it. This method can be used for both new and used vehicles. The result will show the anticipated depreciation for the first year and the total amount of time you select.

Additionally, you can calculate depreciation by comparing the value of your car in the current year to its value in the previous year, considering the additional mileage accumulated. For example, if your car's current value is $11,000, and the same car model from the previous year with 15,000 more miles is valued at $9,800, you can estimate that your car will depreciate by $1,200 in the current year.

It's important to note that certain factors, such as accidents or maintenance, can also impact a vehicle's depreciation rate. Generally, alternative fuel vehicles and luxury vehicles tend to lose their value at a higher rate than more durable vehicles like pickup trucks or SUVs.

Deducting vehicle property taxes

Personal property taxes are imposed by state or local tax authorities and are based on the value of an item of qualifying property. This includes movable property such as vehicles, boats, and furnishings. These taxes are assessed annually and are also known as ad valorem taxes.

Individuals can deduct personal property taxes paid during the year as an itemized deduction on Schedule A of their federal tax returns, subject to certain limitations. The Tax Cuts and Jobs Act (TCJA) imposed an annual cap of $10,000 on this deduction, effective for the 2018 tax year. For married taxpayers filing separately, the limit is $5,000 per tax return, for a total of $10,000.

To claim the deduction for personal property taxes, you must itemize your deductions. This means you cannot claim the standard deduction for your filing status. In the 2023 tax year, the standard deductions are:

• $12,950 for single taxpayers and married individuals filing separate returns
• $19,400 for those who qualify as head of household
• $25,900 for taxpayers who are married and file joint returns

Therefore, it only makes sense to claim a property tax deduction if the total of all your itemized deductions for the year exceeds the amount of the standard deduction.

When it comes to vehicle-related expenses, only the portion of the registration fee that is based on the value of the vehicle can be deducted for tax purposes. The entire fee might not be deductible. Additionally, vehicle insurance costs cannot be deducted for personal vehicles. However, if your vehicle is used for business, you may be able to include your car insurance as part of your deduction. Self-employed individuals and rideshare drivers would need to fill out a Schedule C form, while those who use their personal vehicle for work but are employed by someone else can fill out Form 2106.

It is important to note that commuting to and from work generally does not qualify as business use for tax deduction purposes. Only driving done during work hours and for specific business purposes is eligible. Additionally, personal property taxes are deductible in the year they are paid, not the year they are assessed. Therefore, if the tax is assessed in one year and paid in the next, the deduction can only be claimed on the tax return for the year in which it was paid.

Deducting vehicle expenses for self-employed individuals

If you're self-employed and use your vehicle for business, you may be able to deduct car expenses on your tax return. However, if you use your vehicle for both business and personal purposes, you can only deduct the cost of its business use. This means you must split the expenses, and the deduction is based on the portion of the mileage used for business.

There are two methods for calculating and claiming these deductions: the standard mileage rate method and the actual expense method. With the standard mileage rate method, you can only deduct the mileage at a standard rate. For 2023, this rate is $0.655 per mile. Using this method, you cannot deduct other vehicle expenses, such as registration fees.

The actual expense method allows you to deduct the actual costs of operating your vehicle for business, including gas, repairs, insurance, and depreciation. However, you cannot deduct mileage using this method. To use this method, you must determine the portion of overall vehicle use that is for business purposes.

It is recommended to calculate your deduction using both methods and choose the one that gives you the largest deduction. Regardless of the method chosen, it is important to maintain a log of the miles driven for business and keep good records to support your deductions.

Deducting vehicle expenses for business owners

If you're a business owner or self-employed, you may be able to claim your vehicle expenses as a tax deduction. This includes car insurance, which can be considered when using the actual expense method during filing, along with other costs such as gas and repairs. However, if you opt for the standard mileage rate method, car insurance costs are not considered.

To deduct your vehicle expenses, you need to determine the percentage of business use for your car. This is important because if you use your vehicle for both business and personal purposes, you can only deduct the costs associated with business use. Here are the two methods you can use to calculate your deductible vehicle expenses:

Standard Mileage Rate Method:

• This method uses a standard rate per mile set by the IRS. For 2023, the rate is 65.5 cents per mile.
• To use this method, you must choose it in the first year you use your vehicle for business. In later years, you can switch to the actual expense method.
• Using this method, you calculate your deduction by multiplying your business miles by the standard mileage rate.

Actual Expense Method:

• This method involves calculating your total actual expenses related to your vehicle, such as gas, oil, repairs, insurance, and depreciation.
• You then multiply this total by the percentage of miles driven for business use to determine your deduction.
• Keep in mind that you can only claim the percentage of expenses that apply to business use.

It's important to maintain proper records to support your deductions. Additionally, if you are self-employed, you can deduct your vehicle expenses on Schedule C (Form 1040), Profit or Loss From Business. If you work for an employer but use your vehicle for business, you can fill out Form 2106 to deduct your vehicle expenses.

Deducting vehicle expenses for employees

If you're an employee, vehicle expenses of any kind are not deductible, even if you use your personal vehicle for business purposes, due to the Tax Cuts and Jobs Act of 2017. However, if you're self-employed and use your personal vehicle for business purposes, you can usually deduct your business expenses for that vehicle.

There are two ways of deducting these expenses: the standard mileage rate method and the actual expense method.

Standard Mileage Rate Method

The standard mileage rate is the simpler option. For 2020, the rate was 57.5 cents per mile. In 2023, it was 65.5 cents per mile, and in 2024, it is 67 cents per mile. With this method, you won't be able to claim any actual car expenses for the year, including lease payments, fuel, insurance, and vehicle registration fees. You can only deduct the miles driven for business purposes.

To use the standard mileage rate for your vehicle, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can switch between the standard mileage rate and actual expense method.

Actual Expense Method

If you decide to use the actual expense method, additional auto-related expenses are deductible, such as maintenance and repairs, registration fees and taxes, vehicle loan interest, rental or lease payments, and tolls and parking fees. The percentage of use (based on miles) that the vehicle is used for business determines the deductible portion of these expenses.

To use the actual expense method, you must determine what it actually costs to operate the car for the portion of the overall use of the car that's for business. This includes gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles.

Whether to use the standard mileage rate or actual costs depends on your vehicle's operating costs. The more economical the vehicle is to operate, the more likely it is that the standard mileage rate will give you the bigger deduction. The higher the operating costs (e.g. gas, repairs, tires, etc.), the more beneficial the actual cost method is likely to be.

Frequently asked questions