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Car insurance can only be claimed as a tax deduction in specific circumstances. It can’t be deducted for personal vehicles, but if your vehicle is used for business, you might be able to include your car insurance as part of your deduction. While Bankrate can provide some high-level guidance on what qualifies for these tax deductions, you may want to speak with a tax professional about your specific needs to ensure you are filing properly.
Is my auto insurance tax-deductible?
Business owners and those who are self-employed may be able to claim their car insurance as a tax deduction. Insurance is considered when you use the actual expense method during filing, much like gas or cost of repairs. If you opt for the standard mileage rate method, car insurance costs are not considered.
How to deduct your car insurance when filing taxes
When filing taxes, you may be able to add some or all of the cost of your auto insurance into your business expenses. For self-employed individuals and rideshare drivers (such as Uber and Lyft), you will need to fill out the Schedule C form, which can be found on the IRS website.
If you work for an employer but still use your own vehicle for business, you can fill out Form 2106. These forms allow for reporting of auto insurance premiums and deductibles as a business expense.
Keep in mind that commutes to and from work generally do not qualify as business use. Even if you only use your car to commute between work and home and nothing else, it is unlikely to be eligible for tax deductions. In general, only driving done during your business hours and for business purposes is eligible.
Writing off your car insurance deductible
If your car insurance is tax-deductible, you may be able to write your car insurance deductible off as well. This write-off is only possible if you have had to pay that deductible during that tax year and only applies under certain circumstances. If you have not filed a claim or paid your deductible, there is nothing to report beyond the regular premium payments.
All tax filers need to remember the standard deduction when filing taxes. If your write-offs do not add up to more than the standard deduction, then they will not save you money on taxes. If your totaled deductions exceed the standard deduction, you can replace the standard deduction with your calculated deductions.
What if my car is used for both business and pleasure?
If you use your vehicle for business purposes only, you may have an easier time filing your taxes since you won’t have to figure out the split between your business and personal use. Using your car for both business and pleasure use can make things a bit trickier.
If your car is used for both business and personal purposes, you will need to use the standard mileage rate to calculate how much you can write off. It gives approved cents-per-mile expenses for different uses of vehicles, like driving for business or medical purposes. The standard mileage may be updated each year, so make sure to check the current rates before filing.
For part-time rideshare drivers, such as drivers for Uber or Lyft, you may have purchased an insurance endorsement. Rideshare endorsements generally give you coverage while your app is on and you are looking for a passenger, but remove coverage once someone gets in your car. At that point, Uber or Lyft take over responsibility. In those cases, the rideshare insurance add-on may be considered a business expense, and the associated cost could be tax-deductible.
Frequently asked questions
The best car insurance company will vary based on your needs and circumstances, so consider an insurance company that offers coverage with cheap rates that suits your driving style and risk tolerance.
If you own a home and have multiple cars, the best insurance will likely be one that allows you to bundle these into a lower monthly premium. A small insurance company may be better for someone who wants personalized experience, while a large company may be helpful if it can offer 24/7 service. And if you have multiple accidents on your record or are considered a high-risk driver, the best car insurance company may be one with better rates for drivers with prior incidents.
Understanding your needs is the first step to finding car insurance that fits your situation, and shopping around to compare companies can be a helpful strategy to pick the best insurance.
How much car insurance coverage you need will depend on your risk tolerance, the assets you have to protect, your budget and your overall financial picture. Additionally, most states have required minimum limits that you must meet or exceed to drive legally. Buying minimum limits will often result in a lower premium, but most insurance professionals recommend that you buy higher limits to better protect your finances.
The average cost of car insurance in the U.S. is $2,542 per year for full coverage. However, your premium will vary based on a few common factors that influence your insurance costs. A clean driving record, positive credit history (in certain states) and the type of vehicle you drive may mean a lower premium. Other factors include the state you live in, your driving history, the type of car you drive, rising premiums, and the coverage types and levels you choose.
The best way to know how much you’ll pay is to shop around and compare car insurance quotes