Can I Write Off My Car Purchase as a Business Expense?

It is possible for business owners and self-employed individuals to deduct expenses related to a vehicle used for business purposes. This can include a car purchased specifically for business or a personal vehicle also used for work. The ability to claim these deductions depends on meeting specific criteria set by the Internal Revenue Service (IRS) and selecting an appropriate accounting method. Understanding these rules is important for maximizing potential tax savings.

Determining Business Use Eligibility

A vehicle must be used for “ordinary and necessary” business purposes to qualify for expense deductions. An ordinary expense is common and accepted in your trade or business, while a necessary expense is helpful and appropriate for your business. Only the portion of vehicle use directly attributable to business activity is deductible, not personal use.

If a vehicle is used for both business and personal purposes, you must determine the business-use percentage. This is the ratio of business miles driven to total miles driven, and it is applied to total vehicle expenses to calculate the deductible amount. For instance, driving to meet clients, transport supplies, or travel between different business locations generally qualifies as business use.

Sole proprietors, partnerships, and corporations can claim these deductions. Self-employed individuals report these expenses on Schedule C (Form 1040), Profit or Loss from Business.

Choosing a Deduction Method

When deducting vehicle expenses, you have two primary methods: the standard mileage rate or the actual expense method. The standard mileage rate offers a simpler approach, allowing you to multiply your business miles by a per-mile rate set annually by the IRS. For 2025, this rate is 70 cents per mile. This rate covers depreciation, gas, oil, repairs, insurance, and other common vehicle expenses. You can also deduct tolls and parking fees in addition to the standard mileage rate.

The actual expense method involves tracking and deducting all specific costs associated with operating the vehicle for business. These expenses include fuel, oil, repairs, tires, insurance premiums, registration fees, and lease payments. Interest paid on a car loan and depreciation of the vehicle’s cost are also deductible under this method. This approach requires more detailed record-keeping but can result in a larger deduction if vehicle operating costs are high.

Choosing between these methods involves considering factors like the vehicle’s cost, its fuel efficiency, and total annual business mileage. If you own the vehicle and choose the standard mileage rate in the first year, you cannot switch to the actual expense method and claim accelerated depreciation in later years. For a leased vehicle, if you choose the standard mileage rate, you must use it for the entire lease period.

Understanding Actual Vehicle Expenses

If you opt for the actual expense method, various specific costs associated with operating your business vehicle become deductible. Depreciation is a significant non-cash expense that accounts for the vehicle’s wear and tear over its useful life. It allows you to recover the cost of the vehicle over time.

Costs directly related to the vehicle’s operation and maintenance are also deductible. These include gasoline and oil, repairs and routine maintenance like oil changes or tire rotations. Premiums paid for vehicle insurance are deductible, as are state and local registration fees and taxes imposed on the vehicle.

For vehicles leased for business, the lease payments themselves are deductible. If the vehicle was financed, the interest paid on the car loan can be deducted. Tolls incurred for business travel and parking fees are also deductible, regardless of whether you choose the standard mileage rate or actual expenses. Minor costs, such as car washes or roadside assistance memberships, are also deductible if directly linked to the vehicle’s business use.

Applying Special Deduction Rules

Beyond standard depreciation, specific tax provisions can impact the deductible amount for business vehicles. The Section 179 deduction allows businesses to expense the cost of eligible property, including certain vehicles, in the year they are placed in service, rather than depreciating them over several years. To qualify, the vehicle must be used more than 50% for business. For 2025, there is a specific limit for sport utility vehicles (SUVs) at $31,300.

Bonus depreciation provides an additional first-year deduction for eligible property. For qualifying property placed in service on or after January 20, 2025, and before January 1, 2030, bonus depreciation is set at 100%. This allows for a substantial portion of the vehicle’s cost to be written off upfront. These special deductions are often subject to limitations based on the vehicle type.

Luxury vehicle limitations apply to passenger automobiles (cars, light trucks, and vans with a Gross Vehicle Weight Rating, or GVWR, under 6,000 pounds), capping the annual depreciation deductions, including Section 179 and bonus depreciation. Vehicles with a GVWR over 6,000 pounds, often categorized as heavy SUVs, pickups, and vans, are generally exempt from these luxury vehicle limits, allowing for larger Section 179 deductions, up to $31,300 for 2025.

Maintaining Required Records

Record-keeping is essential for substantiating vehicle expense deductions. The IRS requires adequate documentation to support any claimed business expenses. For vehicle use, this includes maintaining a detailed mileage log. This log should record the date of each trip, destination, business purpose, and beginning and ending odometer readings for both business and total miles driven.

You must also keep receipts for all actual expenses incurred. This means retaining documentation for every purchase of gas, oil, repairs, maintenance, insurance premiums, and registration fees. If you lease the vehicle, keep records of your lease payments. For financed vehicles, retain statements showing interest paid on the car loan.

Practical methods for record-keeping include using physical logbooks, dedicated mileage tracking applications, or digital scanning and storage of receipts. Insufficient documentation can lead to the disallowance of deductions during an audit.