A car is one of the biggest purchases most of us will make. And the price of cars – both new and used – doesn’t seem to be getting any cheaper with recent supply chain issues with semiconductors and other technology isn’t helping things.

When we buy a car, we want to save as much as possible through negotiating with the dealer, taking advantage of sales and more.

But how about when it comes to taxes. One common question people have is “can I get a tax refund for buying a car?” Below you’ll get a straight-to-the-point, plain-English answer to that question.

Can I Get A Tax Refund For Buying A Car?

For the most part, no, you don’t get a tax refund for buying a car. However, there are some situations where you can. And others where you may be eligible for a tax credit.

Depending on your situation, you may be eligible to deduct the automobile sales tax that you paid when purchasing a new or used vehicle on your tax return. The amount of car sales tax you owe will be stated on your purchase order, which will also include your TT&L (tax, title, and licensing) payments. Both state and local government entities can levy sales tax.

If the vehicle that you purchased is used in your business and you deduct the sales tax on your business return, possibly on Schedule C, Form 1040, you will not be able to deduct the sales tax on Schedule A, Form 1040. 

Purchasing an automobile for personal or business use may be eligible for tax deductions depending on the circumstances. It can get complicated so you’ll want to talk with an accountant or tax advisor to make sure you are doing it correctly.

If you use your vehicle for business, charitable purposes, medical expenditures, or relocation expenses, you may be able to deduct the costs of operating it from your taxes. Some of the costs you may be able to deduct include gas and insurance. You may also be able to deduct a per mileage credit.

Tax Rebate For Electric Vehicles and Hybrids

If you buy an all-electric or plug-in hybrid vehicle, you may be able to get a federal income tax credit. The current credit is $7,500.

How much you get depends on the type of car you get. Electric cars from brands like BMW, Ford, Hyundai, Kia, Mercedes and Nissan are eligible for the full $7,500. However, if you buy a Chevy or Tesla, those cars are no longer eligible for the tax credit because those manufacturers have sold too many electric cars.

How To Qualify For Tax Deductions

Now how do you get tax deductions for purchasing a car? Here are the steps you can take:

  • Keep track of all sales receipts and deduct the actual sales taxes you paid during the year.
  • Calculate your deduction using the sales tax tables provided by the IRS. On the basis of your income, these tables compute the anticipated sales tax. Large purchases are not included in this category. As a result, you can add the sales tax you paid on any of the following to the amount in the table:
    • Cars
    • Motorcycles
    • Boats
    • Airplanes
    • Motor homes

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