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Whether or not the interest you pay on a loan to acquire a vehicle is deductible for tax purposes depends how the vehicle is being used (for business or personal purposes), the tax form on which the expenses are being deducted, and the type of loan.

If the loan were a consumer loan secured by the vehicle, then the following rules would apply:

If the vehicle is being used partially for business and the expenses are being deducted on your self-employed business schedule such as Schedule C, then the business portion of the interest will be deductible as business interest, but the personal portion will not.
If the vehicle is being used partially for business as an employee such as Form 2106, and the expenses are being deducted as an itemized deduction, Schedule A, then neither the business portion nor the personal portion of the interest will be deductible.
If the vehicle is entirely for personal use, then none of the interest will be deductible, because the only interest that is still deductible as an itemized deduction is home mortgage interest and investment interest.
As an alternative to a nondeductible consumer loan, you might consider acquiring that vehicle with a home equity line of credit also known as HELOC. Generally, current law allows individual taxpayers to borrow up to $100,000 of home equity and deduct the interest on that loan as home mortgage interest. This would also apply to the purchase of a vehicle or motor home. Using a home equity line will generally make the interest deductible. You can actually use this rule for the purchase of any item. For example, you can purchase a $100,000 jewelry with the home equity line and the interest will be tax deductible.

However, there is an overall limit. You can only write-off the interest on the first $1,100,000 of mortgage debt plus home equity line of credit. Thus if your home mortgage debt is already $1,100,000 or more, you will not be able to write off the interest on the home equity line of credit, no matter what the amount is. Because you’re already at the $1,100,000 over all limit allowed.

Before borrowing against the home, you should consider the following:

Treat the home equity loan like a consumer loan and pay it off over the same period of time you would have had to pay the consumer loan. Otherwise, you may reach retirement age without having the home paid for. Or, you may end up paying a lot more for that item after you take the interest into consideration.
When buying a car, you can sometimes get very favorable interest rates or a rebate. To determine which is best, compare the difference in total loan payments over the life of the loans to the rebate amount.
It is also good practice to make sure the benefit of making the interest deductible is greater by using the home equity line of credit than the benefit of the low interest consumer loan or the rebate.
If there is any chance of defaulting on the loan, the repercussions from defaulting on a home loan are far more serious than on consumer debt.
The above technical reference is provided as a courtesy to the reader by David Silkman, CPA, MST, Broker, Silkman & Associates Accountancy Corporation and SilkRoad Realty, Inc. The information is technical in nature, may not include all the details on a particular subject and may require review of the reader’s circumstances by a professional. You should consult with your tax advisor.

David S. Silkman is a CPA, has a Masters in Taxation (MST) and is a licensed real estate broker. He specializes in real estate tax laws and accounting. If you have any questions, please do not hesitate to call him at 310.479.7020 x301, email him at david@saacpa.com or visit www.saacpa.com or www.SilkRoadRealtyInc.com. Thank you.