Can I Write Off Rental Car Expenses for Business?

Using a rental car for business can provide a tax deduction if you follow Internal Revenue Service (IRS) rules. The costs are deductible if the travel is ordinary and necessary for your business. This involves determining if the travel qualifies, identifying which costs can be claimed, and maintaining meticulous records to support the deduction. For self-employed individuals, these expenses can directly lower their taxable business income.

Determining Business Use for a Rental Car

The deductibility of a rental car depends on whether the travel is for business, which falls into two categories: travel away from home or local transportation. Travel away from home is defined by the IRS as trips long enough to require you to sleep or rest to meet your work’s demands. This means you are away from your primary place of business, or “tax home,” overnight for a business meeting, conference, or to service a client.

Local business transportation involves using a rental car for business errands within your tax home’s general area. This includes driving to a client’s office, a temporary work location, or between separate business locations. The cost of commuting between your residence and your regular place of work is a personal expense and is never deductible. If you work from a home office that qualifies as your principal place of business, travel from your home to another business location in the same area is considered deductible.

When a trip combines business and personal activities, you must allocate the rental car expenses. If the primary reason for the trip is business, you can deduct the rental costs for the days you conduct business. For example, if you rent a car for five days, spend three days meeting with clients and two on personal sightseeing, you can only deduct the costs for the three business days. This allocation must reasonably reflect the portion of the rental used for business.

Identifying Deductible Rental Car Costs

When you deduct expenses for a business rental car, you are required to use the actual expense method. The standard mileage rate, which for 2025 is 70 cents per mile, cannot be used for a vehicle you do not own or lease. This means you must track and sum up all the individual costs incurred while using the rental for qualifying business purposes.

The primary deductible cost is the daily or weekly fee charged by the rental company. Beyond the base rental fee, several other operational costs are deductible. The cost of gasoline you purchase for the vehicle during the business use period is a major component of your total expense. Other direct costs associated with your business travel in the rental car are also deductible, including tolls you pay and parking fees incurred at your business destinations.

Required Recordkeeping for the Deduction

To claim a deduction for rental car expenses, you must maintain thorough and contemporaneous records. The IRS requires evidence that proves the amount, time, place, and business purpose of the travel. This means keeping detailed records as the expenses are incurred, not trying to recreate them months later.

A detailed mileage log is a key part of this documentation. For each business trip, your log should include the dates of travel, the destination, and a clear description of the business purpose. You must also record the total miles driven, separating the miles driven for business from any personal miles.

In addition to a mileage log, you must keep all receipts and documents related to the rental. This includes the rental agreement from the car rental company, which shows the dates and base cost. You must also save all receipts for gas purchases, toll payments, and parking fees, and store these records for at least three years.

Claiming the Deduction on Your Tax Return

The final step is to report the expense on your tax return, and the specific form used depends on your employment status. For self-employed individuals, such as sole proprietors or independent contractors, these expenses are claimed on Schedule C (Form 1040), Profit or Loss from Business. The total rental car expense is reported on line 9, “Car and Truck Expenses.”

The process for W-2 employees is different. The Tax Cuts and Jobs Act of 2017 suspended the deduction for unreimbursed employee business expenses for most taxpayers through 2025. This means that regular employees who rent a car for work but are not reimbursed by their employer generally cannot deduct the cost on their federal tax return.

There are limited exceptions for certain employees, such as Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials. These individuals may still be able to deduct unreimbursed employee travel expenses using Form 2106, Employee Business Expenses. For the majority of the workforce, however, the deduction for rental car expenses is primarily available to those who are self-employed.