Ways to Write Off Car Expenses
There’s no denying that owning a vehicle is a significant and ongoing expense. First there is the cost to purchase the vehicle, which could be several thousand dollars even if you opt for a used car. And a new car will lose value the minute you drive it off the lot, meaning you automatically owe more than the car is worth (ouch). Then there is the cost of gas (which keeps going up), insurance, registration, maintenance, and all sorts of other related expenses. By the time you’re through tallying up the cost of owning a car, you may be prepared to skip it and resort to public transportation. But don’t drive down to the nearest CarMax just yet. There are actually many ways to use vehicle ownership to your advantage when it comes to taxation. Mostly, your car cannot be claimed, but there are occasions where a write-off is in order. Here are just a few ways you can recoup costs by using your car for a deduction.
1. Green vehicle purchase. Although you can no longer get a tax credit for standard hybrid vehicles, the IRS has deemed that both electric cars and newer plug-in hybrids will still be eligible for this write-off. And you could see a hefty return come tax time. Depending on the type of vehicle you buy, you could get as much as $7,500 for the vehicle alone, with an additional $2,000 credited for the installation of a home charging station (federal credit). And the state you live in may offer even more incentives (like California, which will throw in up to $5,000 for some vehicles).
2. Fuel conversion. If you can’t quite pony up the cash for a new set of horses, you may be better off doing some work under the hood of the vehicle you currently own. Most cars can be made greener by installing an electric drive conversion kit to cut down on emissions. This will cost a bit since you will have to purchase the kit and then hire a mechanic to install it, but it could come with a $4,000 rebate (and a reduction at the pump). This rebate is only offered until the end of 2011, so you should jump on it soon. Just make sure that you’ve got some life left in your vehicle; otherwise it might be more cost effective to find something new.
3. Business vehicle. If you are a small business owner, or a contractor who must travel frequently, you can actually write off a work vehicle. Of course, it needs to be used either solely (or mainly) in the pursuit of business. But if you have a vehicle that qualifies, much of the expense can be written off. You will have to separate business and personal use if the vehicle is multipurpose, but there are many devices and programs to help you track usage.
4. Unreimbursed vehicle expenses for work. Any time you have to use your own car for work travel (even if you’re just driving to the airport and paying for parking for a couple days) and you’re not reimbursed by your company, you can claim the expense. You may need to save receipts (gas, parking, maintenance, etc.) or use a mileage tracker to claim this write-off.
5. Donation. When your car is on the outs, you can’t sell it, and you just want it gone, consider donating it to one of many organizations that will refurbish it for needy families or auction it off to fund their charitable organization. You can claim the standard deduction of $500, or in some cases, the auction value.