Whether you’re buying your first car or trading in your old reliable for an upgraded ride, purchasing a new vehicle is an exciting occasion. But to protect your investment (and yourself), you also need to budget for an additional expenditure—your auto insurance policy.

To help ease the strain of any vehicle expense on your wallet, you may be left wondering: is auto insurance tax deductible?

The answer depends on a number of different factors. To determine whether you can receive a tax deduction on your auto insurance, keep reading. In this guide, we’ll discuss specific circumstances for auto insurance tax deductions, as well as other auto-related deductions and incentives.

Can I Deduct My Auto Insurance?

For certain qualifying drivers, auto insurance premiums and other vehicle-related expenses can be deducted from their taxes. What are these qualifications?

Your auto insurance may be tax deductible if you are:

  • Self-employed and use your vehicle for business purposes

  • Serving in the armed forces and traveling up to 100 miles away from home

  • A qualified performing artist

  • A fee-basis state or local government official

If you aren’t self-employed, but your employer asks you to use your vehicle for business purposes, you may also qualify to receive a tax deduction on your auto insurance.

Business-related vehicle usage may include:

  • Picking up or delivering business supplies

  • Driving to meet with clients

  • Driving to business conferences

Unfortunately, your daily commute to and from work does not count as a business expense. This means when it comes time to claim an auto insurance deduction on your taxes, you’ll need to know what percentage of your total vehicle usage went toward business purposes.

For instance, if half of the total driving you do is in order to meet with clients and transport business supplies, you’d be able to apply a 50% deduction of your expenses on your taxes.

However, if your employer reimburses you for the use of your personal vehicle, you’re not able to also receive a tax deduction on your insurance or other auto expenses. For this reason, those who are self-employed are more likely to qualify for any auto insurance tax deductions.

Common self-employed positions that can deduct an insurance premium from their taxes include:

  • Salespeople

  • Ride-share drivers

  • Delivery drivers

  • Photographers / Videographers

Other Auto-Related Deductions

If you do qualify for an auto insurance tax deduction, it’s worth noting that other auto-related expenses can also be claimed on your taxes.

Such expenses can include:

  • Repairs

  • Fuel costs

  • Oil changes

  • Garage rent

  • Lease payments

  • Registration and licensing fees

  • Tire replacement

  • Tolls

  • Parking fees

  • Depreciation

However, just as with your auto insurance, receiving a tax deduction on these expenses comes with certain conditions.

For instance, if you’re driving your vehicle to a sunny vacation destination and get a flat tire, you can’t claim the replacement tire on your taxes—not unless you’re driving to said vacation destination to attend a business conference or meet with a business client.

To receive any auto-related tax deductions, you also need to surpass a certain threshold. In this case, your total vehicle claim costs must be more than two percent of your adjusted gross income. This means if you make $80,000 a year, your auto-related expenses would need to exceed $1,600 (which is two percent of 80,000) in order to qualify for a deduction.

Mileage-Based Deductions

If your job requires a significant amount of driving, you can also choose to base your tax deduction on your mileage rather than your insurance premium and other vehicle-related expenses. This means that you can deduct the standard mileage rate ($0.56 as of 2021) for each business-related mile you drive.

However, it’s important to note that if you choose a standard mileage deduction, you can’t also receive an auto insurance tax deduction.

How can you determine whether to base your deduction on your auto insurance and expenses, or your mileage rate? Keep track of everything. Save receipts from all your business related vehicle expenses, as well as your auto insurance payments. Also be sure to maintain a log of the business-related miles you drive.

That way, when tax season rolls around, you won’t be digging through your desk drawers or scrolling through pages of past bank statements to try to calculate your total expenses. Instead, you can quickly compare your auto-related costs to determine how you can receive the best deduction possible.

What If I Purchase an Electric Vehicle?

Purchasing an electric vehicle can come with a number of benefits. Aside from the important role they play in keeping our air clean, electric vehicles can also save you money in the long run. That’s because electric vehicles rely on battery power, so you don’t need to worry about paying for gas or routine oil changes.

Those who drive electric vehicles can also receive certain tax incentives, like a tax credit. In fact, if you purchase an electric car, you may be eligible for a federal income tax credit of up to $7,500, in addition to any state incentives. Drivers in California, for instance, can receive rebates of up to $2,500 after purchasing an electric vehicle.

But what about a car insurance deductible? Do these differ with electric vehicles?

Like drivers of gas-powered vehicles, drivers of electric vehicles are only eligible to receive deductions on their car insurance premium if they meet the required qualifications discussed earlier.

However, if you’re looking to purchase an electric vehicle, there are differences in auto insurance you’ll want to understand in order to receive the best coverage possible.

Auto Insurance for Electric Vehicles

Car insurance companies take into account a number of different factors when determining your insurance amount.

Standard factors to consider include:

  • Age

  • Location

  • Driving record

  • Vehicle year and type

This means owning an electric vehicle can significantly impact your insurance policy. In fact, you’ll likely pay more to insure an electric vehicle than you would a gas-powered vehicle.

Why?

Put simply, electric vehicles are more expensive than their gas-guzzling counterparts. Plus, repairs on electric vehicles can be costly. This is due in part to their reliance on newer technology which allows the vehicles to run with fewer moving parts. One damaged item in an electric vehicle is probably responsible for several different functions, significantly raising the cost of repair or replacement. In fact, when an electric car is involved in an accident, insurance companies are more likely to declare it totalled due to the high cost of repairs.

An electric car’s battery—its source of power—is also a factor in insurance costs. Replacing a damaged or leaking battery is not only expensive, it also requires additional safety precautions, which translates to a higher insurance policy.

However, the cost of electric cars is declining as they become a more popular and commonplace option for drivers. This means, over time, the costs of insuring and repairing electric vehicles will also decline.

Plus, some insurance companies do offer electric vehicle insurance discounts. Combine this with decreasing repair costs and tax incentives, and you may find that purchasing and insuring an electric vehicle won’t cost any more than what you’d pay for a traditional gas-powered vehicle.

Types of Insurance

Regardless of what type of vehicle you own, finding the best auto insurance policy is crucial. While liability auto insurance is required by law, there are also other types of insurance that can guarantee you’re protected in any number of claims situations.

When choosing your auto insurance company, be sure to also ask about:

  • Collision coverage – This type of insurance covers repair and replacement costs for your vehicle after an accident, no matter who was at fault.

  • Comprehensive coverage – Comprehensive coverage pays for vehicle repairs and replacement if damage is caused by something other than an accident. This includes instances of vehicle theft, animal damage, or weather damage.

  • Medical payments coverage – This type of auto insurance ensures medical bills are covered for you and anyone else who may have been injured in your vehicle during an accident.

  • Personal injury protection – Personal injury protection helps pay for any incidental costs that arise after you’re injured in a car incident. This can include lost income from missing work, child care costs, and grocery delivery fees.

  • Uninsured and underinsured motorist coverage – This coverage provides an additional layer of protection if you’re in an accident caused by an uninsured or underinsured driver.

No matter the incident, make sure to file your insurance claim as soon as possible to avoid any potential complications and ensure a timely reimbursement.

How long does an auto insurance claim take to process?

It depends on the claim. Reimbursement for roadside assistance claims can happen within a few days, while claims for physical vehicle damage may require one to two weeks.

Because medical claims require communication and coordination between the insurance company and the hospital, these claims typically take the most amount of time, so take the necessary steps to get your claim in as quickly (and accurately) as possible.

How Can I Change My Current Policy?

If you’re looking to switch your insurance to a more comprehensive, cost-effective policy, you may be wondering,* Can I cancel my auto insurance at any time? *

While most insurance carriers will allow you to end your policy at any time, you may want to reach out to your insurance company directly to confirm their specific cancellation policies. That way, you’re not hit with any unexpected penalties down the line.

It’s also important that you never have a gap in coverage, so wait to cancel your current policy until your new policy is in place.

For Coverage You and Your Wallet Can Both Appreciate, Choose Online Auto Insurance

Whether you’re looking to switch your current auto insurance policy or find a policy for a new vehicle, Online Auto Insurance can help you find the best coverage for the best prices.

With their easy-to-use online platform, you can quickly compare dozens of quotes across multiple providers. That way, you can find the coverage that’s right for you, and get back to exploring the open road.

Start saving today, with Online Auto Insurance.

Sources:

H&R Block. Adjustments and deductions. \ https://www.hrblock.com/tax-center/filing/adjustments-and-deductions/is-car-insurance-tax-deductible/

Nationwide. Find out if your car insurance is tax deductible. \ https://www.nationwide.com/lc/resources/auto-insurance/articles/is-auto-insurance-tax-deductible

The Balance. When And How Is Your Car Insurance Tax Deductible? \ https://www.thebalance.com/when-and-how-your-car-insurance-might-be-tax-deductible-4589468

Farmers Insurance. Spend Less Time Pumping Gas in the Cold, and Other Potential Perks of Owning an Electric Vehicle. \ https://www.farmers.com/learn/plan-and-prep/perks-of-owning-an-electric-vehicle/

Forbes. I’m Buying An Electric Vehicle—How Does That Affect My Auto Insurance?\ https://www.forbes.com/advisor/car-insurance/electric-vehicle/

Allstate. Car Insurance For Your Electric Vehicle. \ https://www.allstate.com/tr/car-insurance/electric-vehicle.aspx

The Balance. How Long Does an Insurance Claim Take?\ https://www.thebalance.com/how-long-does-an-insurance-claim-take-527095#:\~:text=6%EF%BB%BF%20Using%20an%20insurance,until%20the%20date%20of%20repair

The Balance. Can You Cancel Car Insurance Anytime? \ https://www.thebalance.com/can-i-cancel-car-insurance-anytime-527400