Is the Auto Loan Included in the Cost Basis of a Business Vehicle?

When your business buys a new vehicle, whether you paid cash or financed the purchase does not affect the bookkeeping and tax cost basis. Financing does reduce the amount of upfront cash the company used to purchase the car. The vehicle loan is accounted for as a separate tax item.

Publication 551 of the Internal Revenue Service rules state that the cost basis of purchased property, such as a company-owned vehicle, includes the price, sales tax, freight charges and even installation charges if you add some equipment. The cost basis will be the total amount paid for the vehicle, not including registration fees if the dealer collects those in your state.

The tax code makes it clear that the cost of a vehicle includes the financing money borrowed to pay a portion of the cost. In this respect, an auto loan would be viewed as part of the cost basis. For example, the total cost of a car purchased by your business was $30,000. You put $5,000 cash down and took out a loan for the remaining $25,000. The cost basis for your business would be $30,000; the basis is not limited to the $5,000 cash down payment.

Because it's a business-owned vehicle, you can depreciate the cost basis of the car and deduct a portion -- the calculated depreciation -- of the cost each year as a business expense. The vehicle will be carried on the books of your business at its depreciated value, which is the original cost basis minus the total depreciation claimed since the car was purchased.

For bookkeeping and tax purposes, the auto loan is tracked as a separate financial item. The loan balance is a liability of the company that will decline as the loan balance drops with each payment. The interest on the loan is another business expense deduction. Although the auto loan is secured by the car owned by your business, the two values -- cost basis and loan value -- are separate items for your accounting and tax return.