5 Ways To Get A Tax Break From Your Car

April 18, 2017

Today is Tax Day! With taxes on everyone's mind, we thought it would be the perfect time to highlight the best ways you can claim a tax deduction or credit with your vehicle. You might not think it's possible to get a tax deduction of any kind from your car, but there are more ways than you think!

1. Donate Your Car To Charity

Donating your car to charity is the easiest way to get a tax deduction from your car. When you donate your car to a 501(c)(3) charity, you will receive a receipt that you can use to claim a deduction on your taxes. Donating a car will also give you free towing from anywhere, and your donation will benefit your local chapter of Make-A-Wish!

If you're interested in donating your car to Wheels For Wishes, call us at 1-855-278-9474 or use our online donation form!

2. Deduct Miles You Drive For Charity

If now isn't the right time to donate your car, there are plenty of other ways you can claim a tax deduction from your vehicle. For example, anyone who drives their car for purposes directly related to a charitable cause may deduct the cost of the mileage. There are a few criteria to meet in order to be eligible for this deduction:

The charity you're volunteering for must be a qualified organization, verifiable through the IRS.
You must not be otherwise reimbursed for your miles.
The miles or driving expenses must be directly connected to services you gave for charity or volunteer purposes.
The volunteer purposes are not personal or family matters. For example, helping your friend or neighbor move to a new house does not qualify as volunteering.
You've kept clear records and know how many miles are deductible.

If you meet all of those criteria, you can deduct 14 cents per mile and costs associated with parking and tolls. See IRS Publication 526 for more information.

3. Get A Tax Credit For Buying An Electric Car

Purchasing a hybrid or plug-in electric car may qualify you for nice tax credit. Some electric cars may entitle you to a credit of up to $7,500. Basically, the larger the battery capacity, the higher your credit will be. If you meet these criteria, you may be eligible for this credit:

You are the original owner of the vehicle. In other words, it must be a new vehicle and you must be the first one to own and operate it.
You bought the car in order to use it, not resell it.
You primarily drive the vehicle in the United States.
You started driving the vehicle during or after the 2010 calendar year.

These credits won't be around forever. After the car manufacturer has sold more than 200,000 vehicles of a certain model, the credit will slowly be phased out. Check fueleconomy.gov for an up-to-date chart on which cars are eligible for this credit. Use IRS Form 8936 to claim the credit and read up on Internal Revenue Code 30D for more details.

4. Deduct Sales Tax On A New Vehicle Purchase

A new car purchase is probably one of the biggest expenses you'll face, aside from a house. Luckily, some people can benefit from deducting the sales tax from a car purchase if they meet a few criteria:

You plan on itemizing your deductions rather than claiming the standard deduction.
The sales tax on your new vehicle exceeds your state income tax.

This deduction often only works in favor of people who live in a state with no income tax. If you live in a state that has income tax, it's unlikely that the sales tax from your car is higher than your income taxes, meaning that deducting the car sales tax might not be beneficial to you.

If this deduction does apply to your situation, you can use it even if the car is financed. This is because you'll still be paying the sales tax regardless of how you finance the car. Read the IRS instructions for Schedule A to learn more about itemizing deductions.

5. Deduct Miles Driven For Work

If you're self-employed or drive miles that your company doesn't reimburse, you may be eligible for a tax deduction. Examples of tax deductible miles include:

Driving to get office supplies for your workplace.
Taking a trip to the airport for business purposes.
Being reassigned to a work location that's farther from home (you can only deduct the extra miles).
Going to a meeting or conference required for work.

Like other deductions, these only apply if you are not otherwise reimbursed or compensated for the miles you drive. It's also very important to keep meticulous records on which miles are actually driven for work purposes. Check out IRS Publication 463 for more details.