Can a Business Write Off a Vehicle Purchase?

Businesses often seek ways to reduce their taxable income, and deducting the cost of vehicles used for business purposes presents a significant opportunity. The Internal Revenue Service (IRS) provides specific guidelines and methods for businesses to write off vehicle purchases, allowing for substantial tax savings. This article explores the criteria for eligibility, the various deduction methods available, the records necessary to support claims, and the procedural aspects of reporting these deductions on tax returns.

Eligibility and Use Requirements

For a business to deduct vehicle expenses, the vehicle must be used for legitimate business activities, not merely for commuting between home and a regular workplace. For instance, travel to client locations, making deliveries, or transporting tools and equipment are qualifying business activities. If a vehicle is used for both business and personal purposes, businesses must accurately determine the percentage of business use to calculate the allowable deduction. This percentage is calculated by dividing business miles driven by the total miles driven during the year.

The type of vehicle also influences deduction limits and eligibility for certain methods. The IRS categorizes vehicles by their Gross Vehicle Weight Rating (GVWR), the maximum operating weight specified by the manufacturer. Vehicles with a GVWR of less than 6,000 pounds, such as many passenger cars and small SUVs, face stricter deduction limits. Heavier vehicles, including many full-size SUVs, commercial vans, and pickup trucks, often exceed 6,000 pounds but are less than 14,000 pounds GVWR, qualifying them for potentially higher deductions. Specialized vehicles, like certain delivery vans or work trucks, or those with a GVWR over 14,000 pounds, may qualify for even more generous expensing.

Regardless of the business structure, the vehicle must be used more than 50% for business purposes to qualify for accelerated depreciation methods like Section 179. If business use falls below this threshold, less advantageous depreciation rules apply. Businesses must also place the vehicle in service during the tax year for which the deduction is claimed.

Methods of Deduction

Businesses have several methods to deduct vehicle expenses, each with distinct rules and advantages. The choice between these methods can significantly impact the amount of the deduction.

The Standard Mileage Rate

The Standard Mileage Rate offers a simplified alternative to tracking every vehicle expense. For 2025, the business standard mileage rate is 70 cents per mile driven for business use. This rate covers costs including fuel, maintenance, repairs, tires, insurance, and depreciation. Businesses choosing this method cannot also deduct actual expenses for the vehicle, as those costs are factored into the per-mile rate. This method is often preferred by self-employed individuals and small businesses due to its reduced record-keeping burden, requiring only a log of business miles driven.

The Actual Expense Method

The Actual Expense Method allows businesses to deduct the actual costs incurred to operate the vehicle for business purposes. This method requires meticulous record-keeping for every expense. Deductible costs include gas, oil, repairs, maintenance, insurance premiums, vehicle registration fees, and interest paid on car loans. Lease payments for a business vehicle can also be deducted. If the vehicle is used for both business and personal travel, only the business-use percentage of each expense is deductible.

Depreciation

Depreciation is a method under the actual expense approach that allows businesses to recover the cost of the vehicle over its useful life. For tax purposes, vehicles are classified as five-year property under the Modified Accelerated Cost Recovery System (MACRS). This system allows for accelerated depreciation, meaning larger deductions are taken in the earlier years of the vehicle’s life. Annual depreciation deductions for passenger vehicles are subject to specific “luxury auto” limits, which vary each year. For 2025, if bonus depreciation does not apply, the first-year depreciation limit for passenger vehicles is $12,200.

The Section 179 Deduction

The Section 179 Deduction allows businesses to immediately expense the full purchase price of qualifying property, including vehicles, in the year they are placed in service. This can provide a significant upfront tax benefit. For 2025, the maximum Section 179 deduction is $1,250,000, but this amount begins to phase out once total equipment purchases exceed $3,130,000. Special limits apply to certain vehicles: for SUVs and trucks with a GVWR between 6,000 and 14,000 pounds, the Section 179 deduction is capped at $31,300 for 2025. Vehicles over 14,000 pounds GVWR or those specifically designed for non-personal use, such as certain heavy-duty work trucks or delivery vans, are not subject to this cap and may qualify for the full Section 179 deduction up to the overall limit.

Bonus Depreciation

Bonus Depreciation is an additional first-year depreciation allowance taken after applying the Section 179 deduction, allowing businesses to deduct a larger portion of the vehicle’s cost in the first year it is placed in service. For 2025, the bonus depreciation rate is 40%. This percentage applies to the remaining basis of the vehicle after any Section 179 deduction. Bonus depreciation is available for both new and used qualifying property. For passenger vehicles where bonus depreciation applies, the first-year depreciation limit for 2025 is $20,200.

Information and Records for Claiming Deductions

Accurate and thorough record-keeping is fundamental for substantiating vehicle deductions and is often a focus during IRS audits. The IRS requires these records to be contemporaneous, meaning they should be created at or near the time of the expense or trip.

Key information about the vehicle purchase must be retained. This includes the original purchase price, the date the vehicle was acquired and placed in service, any sales tax paid, and details of loan financing. These documents establish the vehicle’s cost basis for depreciation. Businesses should also keep proof of ownership or lease agreements.

Detailed mileage logs are indispensable for all vehicle deductions, especially when calculating the business-use percentage. An IRS-compliant mileage log should include:
The date of each trip
The starting and ending locations
The specific business purpose of the trip
The total miles driven for that trip

Annual odometer readings at the beginning and end of the year are also required. Distinguishing between business, commuting, and personal miles is imperative, as commuting miles are not deductible.

For businesses using the actual expense method, comprehensive records of all vehicle-related expenses are necessary. This includes retaining receipts and invoices for:
Fuel purchases
Oil changes
Routine maintenance
Major repairs
Tire replacements
Insurance premium payments

Documentation for registration fees, parking fees, and tolls incurred for business purposes should also be kept. Businesses should retain vehicle expense records for at least three years from the date the tax return was filed, though some experts recommend up to seven years, especially if depreciation is involved over multiple years.

Claiming the Deduction on Your Tax Return

Businesses can claim vehicle deductions on their tax returns once all necessary information and records are gathered. The specific forms used depend on the business structure, but the underlying principles of reporting remain consistent across different entity types.

Sole proprietors report vehicle expenses on Schedule C (Form 1040), Profit or Loss From Business. This form provides sections to detail various business expenses, including vehicle costs, either through the standard mileage rate or actual expenses. The calculated deduction directly reduces the sole proprietor’s taxable business income.

For partnerships, vehicle expenses are reported on Form 1065, U.S. Return of Partnership Income. Corporations, including C-corporations and S-corporations, report these deductions on Form 1120, U.S. Corporation Income Tax Return, or Form 1120-S, U.S. Income Tax Return for an S Corporation. Regardless of the entity type, detailed depreciation calculations, including Section 179 and bonus depreciation, are summarized on Form 4562, Depreciation and Amortization.

Information from mileage logs, such as total business miles, calculates the standard mileage deduction directly on Schedule C or similar forms. If the actual expense method is chosen, aggregated costs for fuel, maintenance, insurance, and other operating expenses are entered on the relevant business income form. Depreciation amounts, derived from Form 4562, are then factored into the overall deduction. These deductions reduce the business’s net profit, which lowers taxable income. Consulting with a qualified tax professional is advisable to ensure accurate reporting and maximize allowable deductions while maintaining compliance.