Can I Write Off My Car for Business?

Individuals using a personal vehicle for business activities may deduct associated expenses from their taxable income. This deduction is generally available to self-employed individuals, independent contractors, and small business owners. Understanding these tax provisions can help reduce overall tax liability. Claiming these deductions depends on meeting specific criteria set by tax authorities, focusing on the vehicle’s use and the chosen expense calculation method.

Qualifying Your Vehicle and Travel for Business

Claiming vehicle expenses requires the vehicle’s use to be directly related to business operations. Only use considered “ordinary and necessary” for the business qualifies for a deduction. This means the travel must be common and helpful for your trade or business. Eligible individuals include sole proprietors, partners in a partnership, and owners of LLCs or corporations. Employees generally cannot deduct unreimbursed car expenses due to tax law changes after 2017, unless they are qualified performing artists.

Business use includes driving to client sites, visiting job sites, making deliveries, or traveling between different office locations. Running business errands, like picking up office supplies or making bank deposits, also qualifies. However, travel between your home and a regular place of work is a non-deductible commuting expense.

If your home is your principal place of business, travel from your home office to other work locations, client sites, or temporary job sites can be deductible business mileage. If a vehicle is used for both business and personal purposes, only the portion of expenses attributable to business use is deductible. For instance, if a vehicle is used 70% for business and 30% for personal activities, only 70% of the eligible expenses can be claimed.

Choosing a Deduction Method

Taxpayers have two primary methods for calculating vehicle expense deductions: the Standard Mileage Rate and the Actual Expense method. The choice between these methods impacts the deduction amount and required record-keeping.

The Standard Mileage Rate provides a simplified way to calculate deductions. You multiply your total business miles driven by a set rate provided annually by the IRS. For 2024, the business standard mileage rate is 67 cents per mile, increasing to 70 cents per mile for 2025. This rate includes costs like fuel, oil, maintenance, repairs, tires, insurance, and depreciation. Business-related parking fees and tolls can be deducted in addition to the standard mileage rate.

The Actual Expense method involves tracking and deducting all actual costs of operating the vehicle for business. This method typically requires more detailed record-keeping compared to the standard mileage rate. When deciding, consider factors like the vehicle’s age, purchase price, and total annual operating costs. For an owned vehicle, you must choose the standard mileage rate in the first year it is used for business; in subsequent years, you can switch. If you lease a vehicle and choose the standard mileage rate, you must use that method for the entire lease period.

Understanding Actual Vehicle Costs

If you opt for the Actual Expense method, a wide range of costs associated with operating your vehicle for business can be included in your deduction. These expenses are directly related to the vehicle’s operation and maintenance. The total deductible amount is based on the percentage of business use.

Common deductible costs include gasoline and oil, repairs, maintenance, and new tires. Vehicle insurance premiums and annual registration fees are also deductible. For leased vehicles, the business portion of lease payments can be deducted. For owned vehicles, interest paid on a car loan is deductible. Parking fees and tolls incurred for business purposes are also deductible.

Depreciation is a significant component of the Actual Expense method for owned vehicles. It represents the decrease in the vehicle’s value over time due to wear and tear. The Modified Accelerated Cost Recovery System (MACRS) is used for depreciating business vehicles. Special depreciation allowances like Section 179 and bonus depreciation can allow for larger first-year deductions. Section 179 permits businesses to deduct the full purchase price of qualifying equipment, including certain vehicles. This deduction is up to a specified limit in the year it is placed in service, provided the vehicle is used more than 50% for business. For 2024, the maximum Section 179 deduction is $1,220,000, with a total equipment spending cap of $3,050,000. For heavy SUVs (over 6,000 pounds Gross Vehicle Weight Rating), a higher Section 179 limit applies, reaching $30,500 in 2024 and $31,300 in 2025. Bonus depreciation, which is phasing out, allows an additional percentage of the asset’s cost to be deducted in the first year; it is 60% in 2024 and 40% in 2025. Both new and used vehicles can qualify for these depreciation benefits if they meet the criteria.

Maintaining Required Records

Regardless of the chosen method, maintaining thorough and accurate records is essential for substantiating vehicle expense deductions. The IRS requires detailed documentation to support any claims made on a tax return. Inadequate records can lead to denied deductions during an audit.

A detailed mileage log is a fundamental record for business travel. For each business trip, the log should include the date, destination, business purpose, starting and ending odometer readings, and total miles driven. This record-keeping should be “contemporaneous,” meaning entries are made at or near the time of the trip.

If using the Actual Expense method, retain all receipts for expenses such as gas, oil, repairs, maintenance, insurance, and registration fees. Also, keep other relevant documents like vehicle lease agreements, loan documents, and purchase records. Proper record-keeping helps in accurately calculating deductions and serves as crucial evidence in case of an IRS inquiry.