When can you deduct the cost of your car insurance?

You’ll have to pay both your insurance premium and your deductible in order to insure your car, and in some cases, both can be written off or deducted from your taxes.

Only if you use your car for business can you deduct your insurance deductible from your taxes, and the process is a little more complicated than you might think.

It is not possible to subtract the insurance deductible from one’s income for tax purposes, for example. Continue reading to find out when and how to deduct your car insurance from your taxable income.

When can you deduct the cost of your car insurance from your taxes?
Taking the deductible off of your car insurance policy
For tax purposes, keep accurate records.
How to claim a tax deduction for your car insurance
When can you deduct the cost of your car insurance policy?
Vehicle maintenance, gas, and insurance premiums are all deductible business expenses if your car is used solely for business purposes. Your insurance premiums may be deducted from your tax bill if you are a self-employed contractor who needs to transport your supplies by truck, which is expensive to insure.

It’s important to be aware of the fine print before canceling your car insurance policy.

It’s not a business expense, so you can’t deduct the cost of the car you use to get to and from work. As a result, commuting expenses cannot be deducted from your taxes.
If your employer or business reimburses you for the cost of your car insurance, you cannot write it off.
If your car is used for both business and personal purposes, you may be able to write off some of your insurance costs.
Insurance costs can be deducted from taxes if you use your car for both personal and business purposes, depending on how much time you spend driving for business. If you use your car at least half the time for work, you can deduct half of your yearly insurance costs from your taxable income.

Renters and Hosts on Airbnb
Expenses incurred in maintaining an Airbnb or renting a home can be deducted from your taxes. You can deduct the cost of your insurance if you drive to the house for maintenance, cleaning, or to receive a visitor.

If you only do this occasionally or don’t drive very far, the deduction won’t be very significant because it represents a small portion of your annual driving mileage. The savings can be substantial if you frequently visit your rental property.

Drivers for Uber and Lyft
Your passengers may be better protected if you get a rideshare driver’s insurance policy that covers you as well. You can deduct the cost of your auto insurance for the time you use your car as a taxi cab.

If your state requires that you carry rideshare insurance, you can deduct the entire premium from your taxable income if the coverage kicks in while you’re driving.

As an added bonus, if your state and insurer allow it, you can figure out how much of your monthly car insurance payment goes toward your deductible when you use the vehicle for ridesharing.

Using the example above, if you drive to get groceries, pick up kids, etc. for two hours each day and then drive to pick up Lyft passengers for three hours each night, then you can say that you use your car for ridesharing 60 percent of the time. You can deduct $72 per month or $864 annually from your $120 monthly car insurance premium.

Taking the deductible off of your car insurance policy
For the 2018 tax year onward, you will no longer be able to deduct personal losses as a result of theft or casualty, regardless of whether the loss is insured. The only exception is for property losses that are directly attributable to a disaster and occur within one of a few federally mandated disaster areas. These include Hurricane Harvey, Hurricane Irma, Hurricane Maria, and the wildfires in California, which all met the definition of a natural disaster in 2017.

When a natural disaster causes financial harm to your car, you may be able to deduct the cost on tax returns. The only exception to this rule is if you were compensated for the loss in some other way, such as through insurance. Only the amount of money you actually lost can be recouped. If your car is damaged in a way that is not covered by your insurance, you may be able to write off the deductible or the repair costs.

To determine how much you can write off, you must subtract $500 from the amount of loss.

Consider the case of a $15,000 car that was completely destroyed in a wildfire. Comprehensive coverage, which is an option, would pay for this kind of loss.

Your insurance company would pay out $14,000 if you had full coverage with a $1,000 deductible. After that, you can deduct the remaining $500.
Your insurance company would not compensate you if you didn’t have comprehensive coverage on your vehicle. In this case, the loss would be $14,500 because you could deduct the full value of the car, minus $500.
For tax purposes, keep accurate records.
For tax purposes, you must keep accurate records if you want to deduct the cost of your car insurance. The flexibility of rideshare driving is a major perk: You can drive five hours one day, one hour the next, and seven hours the next.

When driving for business, it can be difficult to keep track of how much time you spent behind the wheel over the course of the year. Keep a running tally of the number of hours you spent behind the wheel, both on and off the clock.

Driving records should be kept for at least three years. It’s important to be prepared in the event that the IRS questions you about your car insurance tax write-offs.