Can a Car Payment Be a Tax Write-Off?
Is your car payment a tax write-off? Uncover the specific vehicle expenses you can deduct for business use and the essential steps to claim them effectively.
While the principal portion of a car payment is generally not deductible, certain car expenses can be written off if the vehicle is used for business purposes. The Internal Revenue Service (IRS) allows deductions for costs associated with operating a vehicle for trade or business. This article outlines who qualifies for these deductions, what types of expenses are eligible, how to calculate the deductible amount, and the necessary record-keeping practices.
Eligibility for Car Expense Deductions
The ability to deduct car expenses hinges on the vehicle’s use for business activities. To qualify, the expenses must be “ordinary and necessary” for your trade or business. An ordinary expense is common and accepted in your industry, while a necessary expense is appropriate and helpful for your business.
Self-employed individuals, including independent contractors, freelancers, and gig workers, can generally deduct business car expenses on Schedule C (Form 1040) or Schedule F (Form 1040) for farmers. They can also use Form 4562 to calculate their deduction. The deduction is based on the percentage of business use if the vehicle is also used for personal reasons.
In contrast, employees generally cannot deduct unreimbursed employee business expenses for tax years 2018 through 2025 due to changes introduced by the Tax Cuts and Jobs Act (TCJA). This suspension affects most W-2 employees, meaning these expenses are not deductible during this period. This deduction is scheduled to be reinstated starting in 2026.
A distinction exists between commuting and business travel. Commuting, which is travel between your home and your regular place of work, is not deductible. However, travel from your home to a temporary work location, between different business locations, or to client sites is considered business travel and can be deductible.
Types of Deductible Car Expenses
The principal portion of a car payment is not a deductible expense. Instead, the focus is on specific costs associated with operating a vehicle for business purposes. When using a vehicle for business, you can deduct a percentage of various expenses based on your business-use percentage.
For vehicles you own, depreciation is a deductible expense. If you lease a vehicle for business, the lease payments can be deductible, along with any sales tax included in the lease payment.
Interest paid on a car loan is also deductible if the vehicle is used for business. Other operating costs that can be deducted include gas, oil, repairs, maintenance, tires, insurance premiums, registration fees, and license plate fees. Tolls and parking fees incurred for business purposes are separately deductible, regardless of the calculation method used.
Calculating Your Car Expense Deduction
There are two primary methods for calculating your car expense deduction: the standard mileage rate and the actual expense method. Taxpayers can choose the method that offers the largest deduction.
The standard mileage rate simplifies the deduction process. For 2025, the business mileage rate is 70 cents per mile. You multiply your business miles by this rate to determine your deduction. This rate covers expenses like depreciation, gas, oil, maintenance, and insurance. Business-related tolls and parking fees can be deducted in addition to the standard mileage rate. If you choose the standard mileage rate for a car you own, you must use it in the first year the car is available for business use; in subsequent years, you can switch between methods. For a leased car, you must use the standard mileage rate for the entire lease period if chosen.
Alternatively, the actual expense method allows you to deduct the actual costs of operating your vehicle for business. This involves tracking and totaling all expenses, such as gas, oil, repairs, tires, insurance, registration fees, and depreciation (for owned vehicles) or lease payments (for leased vehicles). You then apply your business-use percentage to the total actual expenses. This method requires detailed record-keeping, including receipts for all expenditures.
Essential Record Keeping
Maintaining accurate and detailed records is important for substantiating any car expense deductions claimed. The IRS requires taxpayers to support their deductions. Without proper documentation, the IRS may disallow claimed vehicle expenses.
Specific records include a mileage log for all business trips. This log should detail the date, destination, business purpose, and starting and ending odometer readings. Update this log at or near the time of the trip to ensure accuracy.
Beyond mileage, keep receipts for all actual expenses if using that method, including gas, oil, repairs, maintenance, tires, insurance, and registration fees. Records of the vehicle’s total mileage for the year, distinguishing between business, commuting, and personal use, are also necessary to calculate the business-use percentage accurately.