When you buy a used car for personal use, the Internal Revenue Service generally won’t care about it. Once you have earned your money and paid your taxes on it, most things you buy don’t factor into your income taxes after that point. The IRS does care about the other taxes you pay and may care about how you use your car. Those factors may give you tax deductions.
As of the 2013 tax year, the IRS gives you a choice as to how you write off your state taxes. As long as you itemize your deductions and don’t claim the standard deduction, you can write off either your state income tax or the state sales taxes that you pay. If you make major purchases that are subject to sales tax, such as buying a used car, your state sales tax write-off may be worth more than than the state income tax deduction.
While you’re itemizing your deductions, you can also write off a portion of the registration fee you pay when you buy your used car and every year when you renew its registration. Any fee that is tied to the car’s value is tax-deductible as a personal property tax, but you can't write off registration fees that aren’t tied to the car’s value.
Mileage and Expense Deductions
Once you buy your used car, you might also be able to write off a portion of the cost of operating it. The IRS will let you write off a flat rate per mile for your car when you use it in your business, or use it as a part of your job, other than commuting. The write-off is also available if you drive it for medical care, for charitable purposes, or as part of a job-related or business-related move. The mileage rate varies depending on the type of mileage you are writing off. You can also choose to claim your actual operating cost, if you prefer.
Taking Your Write-Offs
You claim different write-offs in different ways. Sales and registration taxes are part of your itemized deductions, as are the cost of charitable miles driven, so if you don’t itemize, you won’t be able to claim them. Mileage driven for your job or for medical purposes is also only deductible if you itemize, but it's also subject to an income floor; if you don’t have enough job-related or medical expenses relative to your income, you won't be able to write anything off.
Moving and business miles can be written off even if you don't itemize. To write off mileage in your used car when you move, your move needs to be for work and your new home needs to be at least 50 miles closer to your new job than your old home was. Business miles get written off on your business tax return, so they reduce your taxable profit.
- Kiplinger: The Most-Overlooked Tax Deductions
- Kiplinger: Deductions for Cars and Other Items You Own Read more at http://www.kiplinger.com/article/taxes/T054-C000-S001-deductions-for-cars-and-other-items-you-own.html#86wbOG61uxYBMV3r.99
- IRS: Standard Mileage Rates for 2013
- IRS: Schedule A (Form 1040)
- IRS: Topic 455 - Moving Expenses
- IRS: Topic 510 - Business Use of Car
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.