Can I Write Off My Car Purchase for Business?
Unlock tax savings for your business vehicle. Learn the rules, methods, and documentation needed to deduct car purchases effectively.
A car purchase is a significant financial commitment. When a vehicle serves a business purpose, understanding how tax deductions can offset this expense is valuable for financial planning. The Internal Revenue Service (IRS) provides guidelines and methods for deducting vehicle costs, allowing businesses to recover a portion of their investment.
Eligibility for Deducting a Car Purchase
A car purchase is eligible for a tax deduction when the vehicle is used for business activities. Personal use does not qualify; only the portion directly attributable to business is deductible, requiring a clear distinction between business and personal mileage.
The percentage of business use directly impacts the deductible amount. For instance, if a vehicle is used 70% for business, only 70% of its eligible costs can be claimed. Self-employed individuals and small business owners are the primary groups who qualify for these deductions. Employees generally cannot deduct unreimbursed business expenses for vehicle use due to tax law changes, with limited exceptions.
Most vehicle types, including cars, light trucks, and SUVs, can qualify for deductions. Heavier vehicles, specifically those with a Gross Vehicle Weight Rating (GVWR) exceeding 6,000 pounds but not more than 14,000 pounds, may offer additional tax advantages through accelerated depreciation. The GVWR, indicating the maximum operating weight, is found on a label inside the driver’s side door jamb. Vehicles exceeding 14,000 pounds GVWR, such as large commercial trucks, often have fewer limitations on deductible amounts.
Methods for Deducting a Car Purchase
Taxpayers have two primary methods for deducting the cost of a business vehicle: the standard mileage rate or the actual expense method. Calculating the deduction using both methods can help identify which provides a greater tax benefit. Once a method is selected for a vehicle, rules govern whether it can be changed in subsequent years.
The standard mileage rate offers a simplified approach, allowing a deduction based on a set rate per business mile driven. For 2025, the IRS established this rate at 70 cents per business mile. This rate covers operating costs including depreciation, fuel, oil, maintenance, and insurance. If the standard mileage rate is chosen, actual expenses for these categories cannot be separately deducted.
Alternatively, the actual expense method requires tracking and deducting all vehicle-related costs. This includes expenses such as gas, oil, repairs, maintenance, insurance premiums, registration fees, and interest paid on a car loan. Depreciation, which allows businesses to recover an asset’s cost over its useful life, is a significant component of this method.
The Modified Accelerated Cost Recovery System (MACRS) is the standard depreciation method for most business property, including vehicles, assigning them a five-year recovery period. Passenger automobiles are subject to “luxury car” limitations, capping the annual depreciation deduction regardless of the vehicle’s actual cost. For vehicles placed in service in 2025 and electing bonus depreciation, these limits are $20,200 for the first year, $19,600 for the second, $11,800 for the third, and $7,060 for each succeeding year.
Beyond standard depreciation, businesses can utilize accelerated depreciation methods like the Section 179 deduction and bonus depreciation. The Section 179 deduction allows businesses to expense the full purchase price of qualifying equipment, including vehicles, in the year they are placed in service. For 2025, the maximum Section 179 deduction is $1,250,000, with a phase-out threshold beginning at $3,130,000 of total equipment purchases.
Specific Section 179 limits apply to vehicles based on their GVWR. Light vehicles (6,000 pounds GVWR or less) have a first-year Section 179 deduction limit of $12,200 for 2025. Heavy SUVs and trucks (between 6,000 and 14,000 pounds GVWR) are capped at a $31,300 Section 179 deduction for 2025. Vehicles exceeding 14,000 pounds GVWR are not subject to these specific vehicle limitations and may qualify for the full Section 179 deduction up to the overall annual limit. To qualify for Section 179, the vehicle must be used more than 50% for business, and both new and used vehicles are eligible.
Bonus depreciation provides an additional first-year depreciation allowance. For 2025, the bonus depreciation rate is 40%, continuing its phase-down. This deduction is applied after any Section 179 deduction and is available for both new and used vehicles. Bonus depreciation can be claimed even if the business does not show a profit for the year. Both Section 179 and bonus depreciation are accelerated methods under the actual expense approach, offering significant first-year write-offs.
Maintaining Records for Car Deductions
Accurate record-keeping is essential for substantiating car deductions and avoiding disallowances by the IRS. Without proper documentation, taxpayers risk losing legitimate deductions during an audit.
For any method chosen, a mileage log is a foundational record. This log should include the date, destination, business purpose, and starting and ending odometer readings to calculate total business miles. Maintaining these records contemporaneously, meaning at or near the time of the trip, is important for IRS compliance. Many taxpayers find mobile applications or manual logbooks useful.
In addition to mileage logs, taxpayers using the actual expense method must retain receipts and invoices for all vehicle-related costs. This includes documentation for fuel, oil changes, repairs, and routine maintenance. Records of insurance premiums, vehicle registration fees, and any car loan documents are also important. These financial records, along with proof of vehicle ownership or lease, support the claimed deductions.
Tax records, including those for vehicle deductions, should be kept for at least three years from the date the tax return was filed or two years from the date the tax was paid, whichever is later. If a vehicle is being depreciated over several years, records should be retained until the statute of limitations expires for the year the property is disposed of. Longer retention periods, such as six years, may apply if a taxpayer omits significant income from their return.