Can I Write Off a Car Purchase for Business?

Claiming a tax deduction for a vehicle purchase is available to individuals who use the vehicle for business purposes. This primarily applies to business owners and self-employed individuals, including independent contractors, freelancers, and gig workers. These taxpayers typically report their business income and expenses on Schedule C (Form 1040) or Schedule F (Form 1040) for farming. The vehicle must be owned or leased by the taxpayer to qualify for the deduction.

For employees, miscellaneous itemized deductions for unreimbursed employee business expenses were suspended from 2018 through 2025. Consequently, most employees cannot deduct the costs of using their personal vehicles for work, even if those expenses are not reimbursed by their employer.

A primary requirement for any vehicle expense deduction is that the vehicle must be used for a legitimate business purpose, not for personal use. Business use includes activities such as traveling between job sites, meeting clients, making deliveries, or going to the bank for business transactions. Commuting from home to a regular place of work is considered personal use and is not deductible.

Only the percentage of the vehicle’s use directly attributable to business activities is deductible. For instance, if a vehicle is used 60% for business and 40% for personal travel, only 60% of the allowable expenses can be deducted. The vehicle must be used more than 50% for business to qualify for certain accelerated depreciation methods.

Understanding Deductible Vehicle Expenses

Once eligibility is established, various costs associated with a business vehicle can be considered for a tax deduction. The initial cost of purchasing a vehicle for business is recovered over time through depreciation, or potentially through accelerated methods like Section 179 expensing or bonus depreciation.

Beyond the purchase price, many ongoing operating expenses are deductible. These include fuel, oil, maintenance, repairs, new tires, and insurance premiums.

Other common deductible expenses include registration fees, licenses, and garage rent. If a vehicle is leased for business purposes, the lease payments are typically deductible, though specific limitations may apply for luxury vehicles based on their fair market value.

For vehicles purchased with a loan, the interest paid on that car loan can be deducted, but only the portion corresponding to the vehicle’s business use. Tolls and parking fees incurred during business travel are also deductible, regardless of the overall deduction method chosen.

Choosing a Deduction Method

Taxpayers have two primary methods for calculating their business vehicle deduction: the standard mileage rate method or the actual expense method. Comparing both before deciding can significantly impact the deduction amount.

The standard mileage rate method offers a simplified way to calculate deductions. A fixed rate is applied to each business mile driven. For 2024, the business standard mileage rate is 67 cents per mile. This rate covers costs like depreciation, fuel, oil, maintenance, insurance, and vehicle registration fees, but these cannot be deducted separately. Parking fees and tolls incurred for business purposes can still be deducted in addition to the standard mileage rate. If a taxpayer chooses the standard mileage rate for a vehicle they own, they must use it in the first year the vehicle is placed in service for business; in subsequent years, they can switch between methods. For leased vehicles, the standard mileage rate must be used for the entire lease period if chosen initially.

Alternatively, the actual expense method involves tracking and deducting all actual business-related vehicle expenses. This approach requires meticulous recordkeeping of every cost incurred. Under this method, the purchase price of the vehicle is recovered through depreciation. Vehicles are typically depreciated over a five-year period using the Modified Accelerated Cost Recovery System (MACRS).

Accelerated depreciation options, such as bonus depreciation and Section 179 deduction, allow for a larger portion of the vehicle’s cost to be deducted in the first year it is placed in service. For 2024, the bonus depreciation rate is 60% of the depreciable basis for qualifying property, including vehicles. This rate is scheduled to decrease in subsequent years. The Section 179 deduction allows businesses to expense the cost of qualifying property, up to a certain limit, in the year it is placed in service. For 2024, the maximum Section 179 deduction is $1,220,000, with a phase-out threshold beginning at $3,050,000 of property placed in service. For certain heavy SUVs with a gross vehicle weight rating (GVWR) over 6,000 pounds but not exceeding 14,000 pounds, the Section 179 deduction is capped at $30,500 for 2024.

Luxury vehicle limits also apply to depreciation deductions, even with bonus depreciation or Section 179. For passenger cars placed in service in 2024, the maximum first-year depreciation with bonus depreciation is $20,400. These limits affect vehicles exceeding certain cost thresholds. If the actual expense method is chosen in the first year, taxpayers cannot switch to the standard mileage rate for that vehicle in later years.

Essential Recordkeeping for Vehicle Deductions

Maintaining precise records is essential for substantiating any business vehicle deductions claimed on a tax return. The Internal Revenue Service (IRS) mandates adequate documentation to prove both the business use of the vehicle and the amount of expenses incurred. Failing to keep proper records can lead to the denial of deductions, and potentially fines or interest during an audit.

Key records include detailed mileage logs for all business trips. Each entry in a mileage log should specify the date of the trip, the destination, the business purpose, and the beginning and ending odometer readings. This contemporaneous recordkeeping is necessary for IRS compliance.

Beyond mileage, taxpayers must retain receipts and other documentation for all actual vehicle expenses if using that deduction method. This includes records for fuel purchases, oil changes, repairs, maintenance, insurance premiums, and registration fees. Documentation of the vehicle’s purchase or lease agreement is also necessary.

To facilitate accurate tracking, taxpayers can utilize various tools such as dedicated logbooks, spreadsheets, or specialized mileage tracking applications. Consistency and accuracy in recording information throughout the tax year are important. These organized records ensure that the reported business use and expenses can be verified if requested by tax authorities.