Can I Write Off a New Car for My Business?

Business owners often consider purchasing a new vehicle and its tax implications. “Writing off” a car means deducting eligible vehicle expenses from a business’s taxable income. This can reduce tax liability.

Qualifying for a Business Vehicle Deduction

To claim a tax deduction for a vehicle, its use must be directly related to business operations. This includes activities like traveling to client sites, making deliveries, or transporting equipment. Commuting between your home and a regular place of business is personal use and does not qualify. However, if your home office is your principal place of business, travel from there to other business locations can be deductible.

Only the portion of vehicle use dedicated to business activities is eligible for a deduction. For example, if a vehicle is used 70% for business and 30% for personal reasons, only 70% of its eligible expenses can be deducted.

This deduction is available to various business structures, including sole proprietors, partnerships, limited liability companies (LLCs), and corporations. The vehicle must be owned or leased by the business or the individual acting in a business capacity. A vehicle used predominantly for personal purposes with only occasional business use does not qualify for substantial tax benefits.

Choosing a Deduction Method

Businesses have two primary methods for deducting vehicle expenses: the standard mileage rate and the actual expense method. Each approach calculates the deductible amount differently and has implications for record-keeping. The choice often depends on factors like business mileage and the vehicle’s operating costs.

The standard mileage rate offers a simplified way to calculate vehicle deductions. For the 2024 tax year, this rate is 67 cents per business mile. This rate covers most vehicle operating costs, including depreciation, fuel, oil, maintenance, and insurance. Separate deductions can still be claimed for business-related tolls and parking fees.

The actual expense method requires tracking all costs associated with operating the vehicle. This includes expenses such as gasoline, oil, repairs, tires, insurance premiums, vehicle registration fees, and interest paid on a car loan. If the vehicle is leased, lease payments can also be included. Under this method, only the percentage of these costs attributable to business use can be deducted.

When deciding between these methods, consider the administrative burden of tracking every expense versus the simplicity of a mileage log. Businesses with high mileage or older, less expensive vehicles might find the standard mileage rate more advantageous. Conversely, businesses with low mileage but significant vehicle expenses, such as a new, high-cost vehicle, may benefit more from the actual expense method.

Understanding Vehicle Depreciation

Depreciation allows businesses to recover the cost of a vehicle over its useful life, reflecting wear and tear. This deduction is significant for new car purchases and is claimed under the actual expense method. Several provisions can accelerate depreciation, offering substantial first-year deductions.

Section 179 permits businesses to deduct the full purchase price of qualifying equipment, including vehicles, in the year they are placed in service. For the 2024 tax year, the maximum Section 179 deduction is $1,220,000, with a phase-out beginning when total property placed in service exceeds $3,050,000. A vehicle must be used more than 50% for business to qualify for this deduction.

Bonus depreciation provides an additional first-year deduction for eligible new or used property, including vehicles. For property placed in service in 2024, the bonus depreciation rate is 60%. This rate is scheduled to decrease to 40% in 2025 and 20% in 2026, phasing out entirely in 2027. Bonus depreciation can be taken on the remaining cost of the vehicle after any Section 179 deduction.

Passenger automobiles, including light trucks and vans with a Gross Vehicle Weight Rating (GVWR) of 6,000 pounds or less, are subject to annual depreciation limits under Section 280F. For a passenger automobile placed in service in 2024 that qualifies for bonus depreciation, the maximum first-year deduction is $20,400. Without bonus depreciation, this limit is $12,400 for the first year.

Certain heavy vehicles, specifically SUVs, pickups, and vans with a GVWR exceeding 6,000 pounds, may bypass these luxury car limits. For the 2024 tax year, the Section 179 deduction for these heavier SUVs is capped at $30,500. For vehicles like cargo vans or pickup trucks with beds at least six feet long, the full Section 179 deduction may apply without this specific cap, provided they are used over 50% for business purposes.

Essential Record Keeping

Record keeping is essential for substantiating any business vehicle deduction. The IRS requires adequate records to support claimed business use and expenses. Without proper documentation, deductions may be disallowed, potentially leading to penalties.

Businesses must maintain detailed mileage logs that include the date, destination, business purpose, and total mileage for each trip. Record the vehicle’s odometer reading at the beginning and end of each tax year. For those using the actual expense method, retain all receipts for vehicle-related costs, such as fuel, repairs, and insurance.

Practical approaches to record keeping include using mileage tracking applications, maintaining a physical logbook, or utilizing spreadsheets. Dedicated folders for organizing paper receipts can also be beneficial. Consistent and accurate record keeping simplifies the tax preparation process.

Failure to maintain comprehensive records can result in the disallowance of claimed deductions during an audit. This can lead to an increase in taxable income and trigger additional taxes, interest, and penalties.