The Inside Scoop On Car Expense Deductions

Taxpayers who have deducted the business use of their car on past tax returns should review whether or not they can still claim this deduction. Some taxpayers can. Some cannot.

Here’s a breakdown of which taxpayers can claim this deduction when they file their tax returns.

Business owners and self-employed individuals
Individuals who own a business or are self-employed and use their vehicle for business may deduct car expenses on their tax return. If a taxpayer uses the car for both business and personal purposes, the expenses must be split. The deduction is based on the portion of mileage used for business.

There are two methods for figuring car expenses:

  1. Using actual expenses
  • These include:
    • Depreciation
    • Lease payments
    • Gas and oil
    • Tires
    • Repairs and tune-ups
    • Insurance
    • Registration fees
  1. Using the standard mileage rate
  • Taxpayers who want to use the standard mileage rate for a car they own must choose to use this method in the first year the car is available for use in their business.
  • Taxpayers who want to use the standard mileage rate for a car they lease must use it for the entire lease period.
  • The standard mileage rate for 2018 is 54.5 cents per mile. For 2019, it‘s 58 cents.

There are recordkeeping requirements for both methods. 

Employees
Employees who use their car for work can no longer take an employee business expense deduction as part of their miscellaneous itemized deductions reported on Schedule A.  Employees can’t deduct this cost even if their employer doesn’t reimburse the employee for using their own car. This is for tax years after December 2017. The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions subject to the 2% floor.  

However, certain taxpayers may still deduct unreimbursed employee travel expenses, this includes Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials.

More information:
Publication 535, Business Expenses

Takeaway

Still not for sure if you can claim this deduction? Call us today and we can find out for sure! 256.489.1478 or schedule a direct appointment below.

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R&D Tax Credits for Restaurants

Are you a restaurant owner? Are you taking advantage of research and development (R&D) tax credits? In an age where technology is an integral part of how restaurants operate, it is crucial for your establishment to find new ways to stay on the cutting edge and keep up with competition.

2023-08-14T10:25:17-05:00April 5, 2019|Accounting, Marketing, Taxes|Comments Off on R&D Tax Credits for Restaurants
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Tax Changes for Short-term Rental Hosts

The Tax Cuts and Jobs Act has important changes that may impact your vacation rental property. If you use an online rental service like Airbnb, HomeAway, or VRBO to rent out your vacation home you might want to take a look at these tax changes.

2023-08-14T10:31:10-05:00March 29, 2019|Accounting, Taxes|Comments Off on Tax Changes for Short-term Rental Hosts
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Taxpayer Withholding

The Internal Revenue Service warned taxpayers to check their income tax withholding for almost all of 2018 due to how the Tax Cuts and Jobs Act affected tax brackets. The IRS announced it would waive the penalty for not paying enough estimated tax if affected taxpayers met most of their tax liability in 2018.

2023-08-14T10:37:06-05:00March 15, 2019|Taxes|Comments Off on Taxpayer Withholding
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Home Ownership — New Tax Laws

Navigating our way through the new tax laws concerning home ownership. What’s deductible: closing costs, mortgage interest, property taxes? Let’s take a closer look and break down some of the basics.

To itemize or not to itemize, that’s the question.

Basically, you’ll want to itemize if you have deductions totaling more than the standard deduction, which is $12,000 for single people and $24,000 for married couples filing jointly. Every taxpayer gets this deduction, homeowner or not. And most people take it because their actual itemized deductions are less than the standard amount.

To decide, you need to know what’s tax deductible when buying or owning a home. Here’s a list of possible deductions:

 Buying

Deductible Closing Costs – One Time Home Purchase

  • real estate taxes charged to you when you closed
  • mortgage interest paid when you settled
  • some loan origination fees (a.k.a. points) applicable to a mortgage of $750,000 or less

Remember you will only want to itemize them if all your deductions above total more than the standard deduction. $12,000 for single people and $24,000 for married couples filing jointly.

Non-deductible Closing Costs

  • Real estate commissions
  • Appraisals
  • Home inspections
  • Attorney fees
  • Title fees
  • Transfer taxes
  • Mortgage Refinance Fees

Owning

Mortgage interest and property taxes are annual expenses of owning a home that may or may not be deductible. 

Mortgage Interest

Yearly, you can write off the interest you pay on up to $750,000 of mortgage debt. Most homeowners don’t have mortgages large enough to hit the cap, says Evan Liddiard, CPA, director of federal tax policy for the National Association of REALTORS®. But people who live in pricey places like San Francisco and Manhattan, or homeowners anywhere with hefty mortgages, will likely maximize the mortgage interest deduction.

Note: The $750,000 cap affects loans taken out after Dec. 17, 2017. If you have a loan older than that and you itemize, you can keep deducting your mortgage interest debt up to $1 million. But if you re-fi that loan, you can only deduct the interest on the amount up to the balance on the day you refinanced – you can’t take extra cash and deduct the interest on the excess.

Home Equity Loan Interest

You can deduct the interest on a home equity loan or a second mortgage. But — and this is a big but — only if you use the proceeds to substantially improve your house, and only if the loan, combined with your first mortgage, doesn’t add up to more than the magic number of $750,000 (or $1 million if the loans were existing as of Dec. 15, 2017).

If you use a home equity loan to pay medical bills, go to Paris, or for anything but home improvement, you can’t write off the interest on your taxes.

State and Local Taxes

You can deduct state and local taxes you paid, including property, sales, and income taxes, up to $10,000. That’s a low cap for people who live in places where state and local taxes are high.

Loss From a Disaster

You can write off the cost of damage to your home if it’s caused by an event in a federally declared disaster zone, like areas in Florida after Hurricane Michael or Shasta County, CA, after a rash of wildfires.

This means standard-variety disasters like a busted water pipe while you’re on vacation or a accidental home fire aren’t deductible.

Moving Expenses

This deduction is also only for some. You can deduct moving expenses if you’re an active member of the armed forces moving to a new station.

And by the way, no matter who you are, if your employer pays your moving expenses, you’ll have to pay taxes on the reimbursement. “This will be a real hardship to many because it’s non-cash income,” says Liddiard.

Home Office

This is a deduction you don’t have to itemize. You can take it on top of the standard deduction, but only if you’re self-employed. If you are an employee and your boss lets you telecommute a day or two a week, you can’t write off home office expenses. You claim it on Schedule C.

Student Loans

Anyone paying a mortgage and a student loan payment will be happy to hear that the interest on your education loan is tax-deductible on top of the standard deduction (no need to itemize). And you can deduct as much as $2,500 in interest per year, depending on your modified adjusted gross income.

Ways to Increase Your Eligible Deductions

There are some other itemize-able costs not related to being a homeowner that could bump you up over the standard deduction. This might allow you to write off your mortgage interest. Charitable contributions and some medical expenses are itemize-able, although medical expenses must exceed 7.5% of your adjusted gross income.

So if you’ve have had a hospital stay or are generous, you could be in itemized-deduction land.

Also, if you’re a single homeowner, it could be easier for you to exceed the standard deduction. The itemized deductions on your house will probably more quickly break the $12,000 standard deduction threshold than a couple’s similar house will break their $24,000 threshold.

Takeaway

Buying or owning a home is the largest purchase most people will ever make. Though each homeowner’s tax benefits will vary depending on a number of factors, building equity is the greatest benefit to all. Equity is the reason home ownership is preferred to renting, besides the fact you can paint walls and get a dog. When it comes time to sell you’ll likely make money off of your initial investment, so home ownership has many benefits beyond tax time.

No need to stress about the numbers let us figure them out for you. Call us today! (256) 489-1478 or schedule an appointment now.

Schedule Appointment

 

We offer so much more than just tax prep.

See Our Services

Home Ownership — New Tax Laws

Navigating our way through the new tax laws concerning home ownership. What’s deductible: closing costs, mortgage interest, property taxes? Let’s take a closer look and break down some of the basics.

To itemize or not to itemize, that’s the question.

Basically, you’ll want to itemize if you have deductions totaling more than the standard deduction, which is $12,000 for single people and $24,000 for married couples filing jointly. Every taxpayer gets this deduction, homeowner or not. And most people take it because their actual itemized deductions are less than the standard amount.

To decide, you need to know what’s tax deductible when buying or owning a home. Here’s a list of possible deductions:

 Buying

Deductible Closing Costs – One Time Home Purchase

  • real estate taxes charged to you when you closed
  • mortgage interest paid when you settled
  • some loan origination fees (a.k.a. points) applicable to a mortgage of $750,000 or less

Remember you will only want to itemize them if all your deductions above total more than the standard deduction. $12,000 for single people and $24,000 for married couples filing jointly.

Non-deductible Closing Costs

  • Real estate commissions
  • Appraisals
  • Home inspections
  • Attorney fees
  • Title fees
  • Transfer taxes
  • Mortgage Refinance Fees

Owning

Mortgage interest and property taxes are annual expenses of owning a home that may or may not be deductible. 

Mortgage Interest

Yearly, you can write off the interest you pay on up to $750,000 of mortgage debt. Most homeowners don’t have mortgages large enough to hit the cap, says Evan Liddiard, CPA, director of federal tax policy for the National Association of REALTORS®. But people who live in pricey places like San Francisco and Manhattan, or homeowners anywhere with hefty mortgages, will likely maximize the mortgage interest deduction.

Note: The $750,000 cap affects loans taken out after Dec. 17, 2017. If you have a loan older than that and you itemize, you can keep deducting your mortgage interest debt up to $1 million. But if you re-fi that loan, you can only deduct the interest on the amount up to the balance on the day you refinanced – you can’t take extra cash and deduct the interest on the excess.

Home Equity Loan Interest

You can deduct the interest on a home equity loan or a second mortgage. But — and this is a big but — only if you use the proceeds to substantially improve your house, and only if the loan, combined with your first mortgage, doesn’t add up to more than the magic number of $750,000 (or $1 million if the loans were existing as of Dec. 15, 2017).

If you use a home equity loan to pay medical bills, go to Paris, or for anything but home improvement, you can’t write off the interest on your taxes.

State and Local Taxes

You can deduct state and local taxes you paid, including property, sales, and income taxes, up to $10,000. That’s a low cap for people who live in places where state and local taxes are high.

Loss From a Disaster

You can write off the cost of damage to your home if it’s caused by an event in a federally declared disaster zone, like areas in Florida after Hurricane Michael or Shasta County, CA, after a rash of wildfires.

This means standard-variety disasters like a busted water pipe while you’re on vacation or a accidental home fire aren’t deductible.

Moving Expenses

This deduction is also only for some. You can deduct moving expenses if you’re an active member of the armed forces moving to a new station.

And by the way, no matter who you are, if your employer pays your moving expenses, you’ll have to pay taxes on the reimbursement. “This will be a real hardship to many because it’s non-cash income,” says Liddiard.

Home Office

This is a deduction you don’t have to itemize. You can take it on top of the standard deduction, but only if you’re self-employed. If you are an employee and your boss lets you telecommute a day or two a week, you can’t write off home office expenses. You claim it on Schedule C.

Student Loans

Anyone paying a mortgage and a student loan payment will be happy to hear that the interest on your education loan is tax-deductible on top of the standard deduction (no need to itemize). And you can deduct as much as $2,500 in interest per year, depending on your modified adjusted gross income.

Ways to Increase Your Eligible Deductions

There are some other itemize-able costs not related to being a homeowner that could bump you up over the standard deduction. This might allow you to write off your mortgage interest. Charitable contributions and some medical expenses are itemize-able, although medical expenses must exceed 7.5% of your adjusted gross income.

So if you’ve have had a hospital stay or are generous, you could be in itemized-deduction land.

Also, if you’re a single homeowner, it could be easier for you to exceed the standard deduction. The itemized deductions on your house will probably more quickly break the $12,000 standard deduction threshold than a couple’s similar house will break their $24,000 threshold.

Takeaway

Buying or owning a home is the largest purchase most people will ever make. Though each homeowner’s tax benefits will vary depending on a number of factors, building equity is the greatest benefit to all. Equity is the reason home ownership is preferred to renting, besides the fact you can paint walls and get a dog. When it comes time to sell you’ll likely make money off of your initial investment, so home ownership has many benefits beyond tax time.

No need to stress about the numbers let us figure them out for you. Call us today! (256) 489-1478 or schedule an appointment now.

Schedule Appointment

 

We offer so much more than just tax prep.

See Our Services

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