Question about interest deduction for New Vehicle Purchase

Forum|Forum|11 months ago
April 8, 2025
1 reply
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I purchased a used car from a private party seller.

I borrowed $10,000 from a friend to make the car purchase, under the agreement, I would repay him $12,000. Those debts are resolved. Is the $2000 in interest paid on the $10,000 loan deductible / claimable or does such a deduction only apply to loans furnished by a licensed lender or finance company?

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SusanY1

There is no requirement that interest is only deductible when loans are furnished by a licensed lender or finance company.

The lender may have a requirement to report the interest as interest income, but whether or not it is deductible depends on the vehicle's use. Is this a business use or personal use only vehicle? Or some combination of the two?

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HisRoyalTaxinessAuthor

Thanks for the prompt reply. The vehicle use is about 80% business 20% personal.

SusanY1

If you are calculating your business vehicle expense using the standard mileage rate, there is no additional deduction for intererst paid. If you are deducting actual expenses, then business use percentage of the interest paid is an expense in the year that it is paid. If the loan term extended beyond a year, the interest must be amortized across the life of the loan. (This assumes also that the vehicle was used for business in that year.)

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