Can My Car Be a Tax Write Off for Your Business?

For many businesses and self-employed individuals, a vehicle is an integral part of daily operations. The expenses associated with using a car for business purposes can often be deducted on a tax return, potentially reducing overall tax liability. This article clarifies the criteria for these deductions and explains the various methods available for calculating the deductible amount. Understanding these rules is important for anyone seeking to maximize their tax savings related to business vehicle use.

Qualifying for a Car Tax Deduction

The fundamental requirement for deducting car expenses is that the vehicle must be used for business purposes. This means the use must be ordinary and necessary for your trade or business. Business use specifically excludes commuting between your home and a regular place of work, as this is considered a personal expense. However, travel from your home to a temporary work location, or between multiple business locations, generally qualifies as business use.

Individuals eligible to deduct car expenses include self-employed individuals, independent contractors, and business owners who operate as sole proprietors, partnerships, or S corporations. These individuals often use their personal vehicles for business activities, such as client visits, supply runs, or travel between job sites. For employees, unreimbursed business expenses, including car expenses, are generally no longer deductible for federal income tax purposes due to federal tax law changes. Some states, however, may still allow deductions for these expenses under their own tax laws.

Understanding Deduction Methods

When deducting car expenses, taxpayers can choose between two primary methods: the standard mileage rate or the actual expenses method. The standard mileage rate offers a simplified approach, allowing a deduction based on a fixed rate per business mile driven. This rate, set annually by the Internal Revenue Service (IRS), accounts for various costs of operating a vehicle, including depreciation, fuel, oil, maintenance, repairs, and insurance. The specific rate changes each year to reflect fluctuating vehicle operating costs. For 2025, the business use rate is 70 cents per mile.

Alternatively, the actual expenses method involves itemizing and deducting the actual costs incurred for business use of the vehicle. This method allows for the deduction of a wider range of specific expenses. These include:
Gasoline and oil
Repairs and routine maintenance
New tires
Vehicle insurance premiums
Vehicle registration fees

If the vehicle is leased, the lease payments can be included. For purchased vehicles, a portion of the vehicle’s cost can be recovered through depreciation.

Calculating Your Deduction

Calculating the car expense deduction depends on the chosen method. If electing the standard mileage rate, the calculation is straightforward: multiply the total number of business miles driven during the tax year by the IRS-published standard mileage rate for that year. Only miles driven for business purposes are eligible for this calculation.

For the actual expenses method, a first step involves determining the “business-use percentage” of the vehicle. This percentage is calculated by dividing the total business miles driven by the total miles (business and personal) driven during the year. Once this percentage is established, it is applied to the total actual expenses incurred for the vehicle to arrive at the deductible amount. For instance, if a vehicle was used 70% for business, then 70% of the total gas, oil, repairs, and insurance costs would be deductible.

Depreciation is a component of the actual expense method for purchased vehicles, allowing for the recovery of the vehicle’s cost over its useful life. Special rules, such as the Section 179 deduction and bonus depreciation, can significantly accelerate this recovery. The Section 179 deduction permits businesses to deduct the full purchase price of qualifying equipment, including certain vehicles, in the year they are placed in service, rather than depreciating them over several years. For 2025, the maximum Section 179 deduction for qualifying vehicles weighing over 6,000 pounds Gross Vehicle Weight Rating (GVWR) is $31,300, provided the vehicle is used more than 50% for business. Vehicles under 6,000 pounds GVWR have lower limits, estimated at $20,400 for 2025, which includes bonus depreciation.

Bonus depreciation allows businesses to deduct an additional percentage of the cost of qualifying new or used property in the year it is placed in service. For 2025, bonus depreciation is set at 40% of the vehicle’s cost after any Section 179 deduction has been applied. This means a business can claim both Section 179 and bonus depreciation, potentially writing off a substantial portion of the vehicle’s cost in the first year. For example, if a heavy SUV costing $75,000 is purchased in 2025 and used 100% for business, a $31,300 Section 179 deduction could be taken, followed by 40% bonus depreciation on the remaining $43,700 ($17,480), resulting in a total first-year deduction of $48,780.

For leased vehicles, the lease payments are deductible based on the business-use percentage, similar to other actual expenses. However, a “lease inclusion amount” may need to be factored in, which generally reduces the deductible lease payments. This inclusion amount, published annually by the IRS, aims to prevent taxpayers from circumventing the depreciation limits that apply to purchased luxury vehicles. The specific amount depends on the vehicle’s fair market value and the year it was first leased.

Documenting Your Car Expenses

Accurate and thorough record-keeping is essential for substantiating car expense deductions, regardless of the method chosen. The IRS requires detailed records to support any claims made on a tax return. Without proper documentation, deductions may be disallowed during an audit.

For both the standard mileage rate and actual expenses methods, a comprehensive mileage log is indispensable. This log should include:
The date of each business trip
The destination
The specific business purpose for the travel
The odometer readings at the start and end of each trip

It is also advisable to record the total annual mileage and the total business mileage for the year.

If using the actual expenses method, receipts for all vehicle-related costs must be maintained. This includes receipts for:
Fuel
Oil changes
Repairs
Maintenance services
Tire purchases
Insurance payments
Registration fees

Records related to the vehicle’s purchase or lease agreement should also be kept. Contemporaneous record-keeping, meaning recording expenses and mileage at or near the time they occur, is strongly emphasized by the IRS. These meticulous records are vital for supporting the claimed deductions in the event of an IRS inquiry or audit.