Can I Write Off a Vehicle for My Business?

Small business owners and self-employed individuals often wonder if they can deduct vehicle expenses for tax purposes. Properly accounting for business vehicle use is a key part of tax planning. This involves distinguishing between different types of use and choosing the best deduction method. Following IRS guidelines carefully can help reduce taxable income.

Determining Business Use and Eligibility

To deduct vehicle expenses, the vehicle must be used for business activities. This includes driving for work-related tasks like meeting clients, delivering products, traveling between job sites, or running business errands. Only the portion of vehicle use directly related to business is eligible for deduction.

A distinction exists between business travel and commuting. Travel between a home and a regular workplace is considered a non-deductible personal commuting expense. However, if a taxpayer travels from a home office (the principal place of business) to another business location, that travel can be deductible business mileage.

For a vehicle to qualify for a business write-off, its use must be “ordinary and necessary” for the business. An ordinary expense is common and accepted in the trade or business, while a necessary expense is helpful and appropriate. If a vehicle is used for both business and personal reasons, only the percentage of use directly attributable to business is deductible. For example, if a vehicle is used 60% for business, then 60% of its qualified expenses or depreciation can be deducted.

Choosing a Deduction Method

Businesses can choose between two methods for deducting vehicle expenses: the standard mileage rate or the actual expense method. Each approach calculates the deduction differently and has specific requirements. The choice often depends on the extent of business use and the desire for meticulous record-keeping.

The standard mileage rate offers a simpler way to calculate vehicle deductions. Businesses multiply their qualified business miles by an IRS-set annual rate. For example, the rate for business miles in 2024 was 67 cents per mile, increasing to 70 cents per mile in 2025. This rate covers operating costs like depreciation, fuel, oil, repairs, maintenance, and insurance. Parking fees and tolls for business purposes can be deducted in addition to the standard mileage rate.

To use this method, a taxpayer must own or lease the car. If this method is chosen for a vehicle, certain accelerated depreciation methods cannot have been claimed on it in prior years. For leased vehicles, the standard mileage rate must be used for the entire lease period.

Alternatively, the actual expense method allows businesses to deduct specific operating costs. This requires tracking all expenses, including gas, oil, repairs, maintenance, insurance premiums, and vehicle registration fees. Lease payments and interest paid on a car loan can also be included. Once all actual expenses are totaled, the business-use percentage of the vehicle determines the deductible amount. For example, if total actual expenses are $2,500 and the vehicle is used 75% for business, the deduction would be $1,875.

While this method can lead to a larger deduction, it demands comprehensive record-keeping. If the actual expense method is chosen in the first year a vehicle is placed in service, a business must generally continue using it for that vehicle in future years.

Understanding Depreciation and Accelerated Deductions

For vehicles purchased for business use, their cost is recovered over several years through depreciation. Depreciation accounts for the wear and tear or obsolescence of an asset over its useful life. The Modified Accelerated Cost Recovery System (MACRS) is the general depreciation system used for most business property, including vehicles.

Beyond standard depreciation, businesses may utilize accelerated deduction methods like the Section 179 deduction and bonus depreciation. Section 179 allows businesses to expense the cost of qualifying property, including vehicles, in the year it is placed in service, rather than depreciating it over time. To qualify, the vehicle must be used more than 50% for business.

For 2024, the maximum Section 179 deduction for light vehicles (under 6,000 pounds GVWR) is $12,400, while for heavy vehicles (6,000 to 14,000 pounds GVWR), it can be up to $30,500. These limits are reduced if the vehicle is not used 100% for business. Used vehicles can also qualify for Section 179.

Bonus depreciation is another accelerated deduction, allowing businesses to deduct a significant percentage of the cost of qualifying new or used property in the year it is placed in service. For 2024, qualifying vehicles may be eligible for 60% bonus depreciation, decreasing to 40% in 2025. This deduction can be taken even if the business has a tax loss, unlike Section 179, which is limited by taxable income. For light vehicles, bonus depreciation can add up to $8,000 to the potential first-year deduction. These accelerated deductions can substantially reduce taxable income in the year of purchase.

Maintaining Accurate Records

Accurate and detailed record-keeping is fundamental for substantiating any vehicle deductions claimed for business purposes. The IRS requires proper documentation, regardless of whether the standard mileage rate or actual expense method is chosen. Failing to maintain adequate records can lead to disallowance of deductions during an audit.

A mileage log is an essential record for all business-related travel. This log should include the date of the trip, destination, business purpose, and odometer readings at the start and end of each journey. Maintaining such a log helps accurately determine total business miles driven and the vehicle’s business-use percentage.

For those using the actual expense method, keeping all receipts for vehicle-related expenditures is important. This includes receipts for fuel, oil changes, repairs, maintenance, tires, insurance premiums, and registration fees. These receipts provide proof of the expenses incurred and their amounts. Beyond mileage and expense receipts, businesses should also maintain records of the vehicle itself, such as the purchase date, initial cost, make, model, and Vehicle Identification Number (VIN). This documentation supports claims made on a tax return and demonstrates the vehicle’s ordinary and necessary business use.