Can You Claim a Car Repair Tax Deduction if Self-Employed?

If you are self-employed and use your vehicle for business, you can deduct operating costs, including repairs. This deduction helps lower your taxable income. The Internal Revenue Service (IRS) provides two methods for this deduction, and your choice determines which expenses, like car repairs, you can claim.

Choosing Your Deduction Method

You must select one of two methods for your vehicle expense deduction: the standard mileage rate or the actual expense method. You cannot use both in the same year for the same vehicle. The standard mileage rate lets you deduct a set amount for every business mile, covering most operating costs like repairs and maintenance.

The actual expense method involves deducting the business portion of every vehicle-related cost. This method may result in a larger deduction if your vehicle has high operating costs but requires more detailed records. Your decision depends on which provides a greater tax benefit. Once you choose a method for a vehicle, you may be restricted from changing it in subsequent years.

The Actual Expense Method

The actual expense method allows for the deduction of the business-use percentage of all costs related to operating your vehicle. Qualifying repairs are those necessary to keep the vehicle in its normal working condition, such as brake replacements, oil changes, and new tires. These are costs that maintain the car, rather than improve it.

You must distinguish between a repair and an improvement. An improvement enhances a vehicle’s value or extends its useful life and must be depreciated over time instead of being deducted immediately. For example, fixing a broken transmission is a repair, while replacing a standard engine with a high-performance one is an improvement. Other deductible costs include:

• Gasoline and oil
• Insurance premiums
• Registration fees
• Lease payments if you lease the vehicle

To calculate your deduction, determine your business-use percentage by dividing the total business miles by the total miles driven for the year. For instance, if you drove 15,000 business miles out of 20,000 total miles, your business-use percentage is 75%. You then apply this percentage to your total vehicle expenses to find the deductible amount.

The Standard Mileage Rate

The standard mileage rate is a simplified alternative for your car deduction. The IRS sets a rate per business mile each year, which for 2024 is 67 cents per mile. This rate covers variable costs like gasoline, maintenance, and repairs, so you cannot take a separate deduction for these items if you choose this method.

While you cannot deduct repairs separately, certain expenses are not factored into the standard mileage rate and can be deducted in addition to your mileage calculation. These include:

• Business-related parking fees and highway tolls
• The business portion of interest on a car loan
• State and local personal property taxes on the vehicle

Choosing the standard mileage rate benefits those who drive many business miles in a fuel-efficient car with low repair costs. It eliminates the need to save every receipt for gas or maintenance. However, it might provide a smaller deduction for those with older vehicles that require frequent and expensive repairs.

Required Records and Documentation

The IRS requires record-keeping to substantiate your claims, regardless of the method chosen. A mileage log is a requirement for both methods. This log must document total miles driven, total business miles, the date of each business trip, your destination, and the business purpose of travel.

For the actual expense method, documentation is more extensive. In addition to the mileage log, you must keep receipts and invoices for every vehicle-related expense you claim. This includes proof of payment for repairs, gasoline, insurance, and registration. An expense may be disallowed during an audit without this proof.

Digital apps and spreadsheets can help automate the process of tracking mileage and organizing expenses. The responsibility remains with the taxpayer to ensure the information is accurate and complete.

How to Claim the Deduction

Report your car expenses on Schedule C (Form 1040), Profit or Loss from Business. This form is used by sole proprietors to report business income and expenses. Your total car and truck expense deduction is entered on Line 9.

Further detail is required in Part IV of Schedule C, “Information on Your Vehicle.” You must provide information about your vehicle, including the date it was placed in service for business use. You also list the total number of miles driven for business, commuting, and other personal purposes.

If you use the actual expense method and are claiming depreciation on your vehicle, you must also file Form 4562, Depreciation and Amortization. This form is used to calculate the depreciation deduction, which is then included in your total vehicle expense on Schedule C. The form is also necessary for taking a Section 179 deduction to expense a portion of the vehicle’s cost in its first year.