Can you deduct your car on your taxes?

As a car company, we often get customers asking us, “Can you deduct your car on your taxes?They’re not alone: Americans everywhere are starting to think through their finances as tax season approaches. But most people don’t know all the ways that their cars can have an impact on their returns, or vice versa. We’ve rounded up some of the best tips you need to know to maximize your money. 

Your taxes and your [next] car

Perhaps the most obvious way to get the most out of tax season is if you receive a refund from the government after filing your return. The average American receives about $2,900 back on their annual tax refund. Compare that to the average used car price of about $20,000, and an average 12 percent down payment of $2,400. So it’s easy to see how that extra cash windfall can literally pay for a new set of wheels. It’s no wonder why TurboTax lists replacing your car as one of the best ways to spend your tax refund. Some people also use that cash to pay for service or upgrades to their current vehicle. 

One of the hidden benefits to putting a tax return towards a car’s down payment is that you can generally either afford a more expensive car (a higher-value asset). Alternatively, you can apply more money towards the down payment, which can lower your overall loan amount and APR. Keep in mind that high-quality used cars tend to retain their value better than brand new cars, so your money will go farther if you choose to buy used. 

Moreover, if you purchased or used a car for professional purposes (for example, a van for your catering business), you can also write that off on your taxes. Here’s a full rundown of the tax considerations for business vehicles.

Other Ways to Use Your Car on Your Taxes

Even if you don’t have a refund coming your way, you can still take advantage of some vehicle-related benefits come tax season.  You can deduct sales tax on a car purchase for local and state taxes when you itemize your deductions. (Given the large price tag of a new car, that’s a lot of sales tax).

On the flip side, if you live in certain states, you can also get a huge sales tax benefit by trading in a car. Those states will let you apply your trade-in credit to the total price before tax is applied, meaning it will bring down the overall taxable amount. So you’ll end up paying much less in sales tax upfront. 

Pro tip: Run the numbers first to see what your payments and APR might be when accounting for that extra cash. Better yet, get prequalified to get an accurate estimate of your monthly payments upfront. (Shift’s prequalification tool even lets you shop based on your predicted loan terms.) That’s some savvy financial planning.