Deduct sales tax and loan interest from taxes?

They didn't pass the interest deduction. That would have been a better plan than the C4C.

 

This is all dependent upon who you pay your interest to, and how.

In my case, I took out a loan from Toyota when I bought the car, then closed on a Hoe Equity Line of Credit. Since I used those funds to pay off the Toyota loan in full, and am instead paying interest on my home now, this interest is tax deductible (for most of us), as it is interest on my primary home.

So while there was not any (to my knowledge) Federal changes to allow for interest deductions (as there was for sales tax deductions), I know that many people would be able to deduct the interest expense in this way.

 

Generally (in CA) I believe, estimated (plus car, or all itemized) state Sales taxes can be included in state deductions (if you itemize).

 

Wow, you want tax advice on a car forum -AND YOU GOT IT-! Wonders will never cease!

 

:amen:

 

I would agree with you that rolling it into a 15 or longer year home loan would make no sense.

What I did, is that with the Toyota Loan, my monthly payment, for the next 5 years were close to 500 each month.

By borrowing only enough to cover the cost of the loan, I have an interest only payment now of only 134 dollars per month. HOWEVER, and this is the part that mattered to me, by still paying the $500 per month towards this loan, I am still paying the HELOC (Home Equity Line of Credit) for the same 5 year term (I am actually paying $600 per month to accelerate the schedule just as i could with Toyota), but here is the other reason (in addition to being able to reduce my taxable liability at the end of the year)...

If something were to happen to my job, for example, or another financial situation where I needed to have money available, I could temporarily make only the minimum monthly payment of $134 per month, without losing my car.

Since I am the sole breadwinner in our family, I thought it made sense to roll the loan into a HELOC this way. This would not make sense for all folks. I would certainly not advocate it for those who would be tempted to moke only the minimum payment, as the car would not get paid down.

However, for someone who is looking for a maximum tax advantage, and still has the ability to refrain from getting into a financial mess, this method makes perfect sense.

(In reality, I will likely have the car paid off in full within 20 months months, but with $134 in interest per month for 20 months, for someone in my tax bracket, this move will reduce my interests costs-via a tax deduction, valued for this transaction at about $1350 over the two years I plan to owe on it.)

 

With a home equity line of credit, you aren't necessarily folding your car loan into a 15 or 30 year home loan (although I suppose you could take a real long time to pay it off if you just made the minimal payment). You can pay off the HELOC amount borrowed for the car over a much shorter period of time - say the same amount of time you would have used for a typical car loan 3-5 years. It is really up to you, as long as you pay the minimum required under the HELOC. The difference is that if you itemize (and if you have a mortgage, you are probably itemizing), the HELOC interest is deductible, whereas interest on a regular automotive loan is not. Whether the arrangement is of benefit to you depends on your marginal tax bracket and the rates you can get for a HELOC and a car loan.

A HELOC is handy because once you qualify, you can simply write a check on the line when you need to do so. You don't make a separate application each time you want to use the line. Having said that, one should always be careful about incurring additional debt, especially when you use your house for collateral.