Can You Write Off a Car Purchase for Business?

Purchasing a car for business purposes can offer notable tax benefits. The Internal Revenue Service (IRS) allows deductions for vehicle costs used for work, which can reduce your taxable income. Claiming these deductions involves understanding specific rules and maintaining accurate records.

Determining Business Use and Eligibility

To deduct vehicle expenses, the vehicle must be used for business. The IRS defines business use as travel between work locations, visiting customers, or attending business meetings away from the regular workplace. Travel between your home and a regular place of work is considered commuting and is not deductible.

Only the portion of the vehicle’s use directly related to business activities can be deducted. For example, if a vehicle is used 75% for business, only 75% of the associated costs are eligible. This percentage is calculated by dividing total business miles by total miles driven for the year.

Qualifying scenarios include a contractor driving to job sites, a salesperson visiting clients, or a real estate agent traveling to show properties. Using a business vehicle for personal errands, vacations, or daily commutes from home to a fixed office location does not qualify. Businesses must demonstrate that expenses are ordinary and necessary for their trade or business.

Understanding Deduction Methods

Taxpayers can choose between two methods to deduct vehicle expenses: the standard mileage rate or the actual expenses method. It is beneficial to calculate the deduction using both methods to determine which yields a larger tax benefit.

Standard Mileage Rate

The standard mileage rate offers a simplified way to calculate deductions by multiplying business miles driven by a set rate. For 2025, the standard business mileage rate is 70 cents per mile. This rate covers depreciation, gas, oil, repairs, insurance, and other vehicle operating expenses.

When using the standard mileage rate, separate deductions for actual expenses like maintenance or fuel are not allowed. However, parking fees and tolls incurred for business purposes can be deducted in addition to the standard mileage rate. This method requires less detailed recordkeeping than the actual expense method.

Actual Expenses

The actual expenses method involves itemizing and deducting all costs of operating the vehicle for business. These expenses include gasoline, oil, repairs, tires, insurance, vehicle registration fees, and interest paid on a car loan. If the vehicle is leased, a percentage of the lease payments can be deducted, proportional to its business use.

Depreciation is a component of the actual expense method for purchased vehicles. It accounts for the reduction in value of the vehicle over its useful life. Vehicles are typically classified as five-year property under the Modified Accelerated Cost Recovery System (MACRS).

Section 179 Deduction

Section 179 of the Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment, including vehicles, in the year they are placed in service. This can provide immediate tax savings. For 2025, the maximum Section 179 deduction is $1,250,000, but this limit is reduced when total property placed in service during the year exceeds $3,130,000.

To qualify for the Section 179 deduction, the vehicle must be used more than 50% for business purposes. The deductible amount is limited to the business-use percentage of the vehicle’s cost. For example, if a vehicle used 80% for business costs $50,000, only $40,000 would be eligible for the Section 179 deduction, subject to overall limits.

Bonus Depreciation

Bonus depreciation allows businesses to deduct an additional percentage of the cost of eligible property in the year it is placed in service. This deduction is taken after any Section 179 deduction. For 2025, the bonus depreciation rate is 40% for qualified property.

Bonus depreciation is not subject to an annual dollar limit or a business income limitation, unlike Section 179. It can be claimed on both new and used qualifying assets, provided the used asset is “new to you.” The bonus depreciation percentage is scheduled to phase down, reaching 20% in 2026 and 0% in 2027.

Choosing a Method

The choice between the standard mileage rate and actual expenses depends on specific circumstances. The standard mileage rate is simpler for recordkeeping and may be more advantageous for vehicles with high business mileage and lower operating costs. The actual expense method, including depreciation and accelerated deductions like Section 179 and bonus depreciation, can result in a larger deduction for more expensive vehicles or those with significant operating expenses. Compare calculations under both methods to maximize the deduction.

Specific Rules for Vehicle Types and Purchase Limits

The tax treatment of vehicle deductions varies based on the vehicle’s type and its Gross Vehicle Weight Rating (GVWR). The GVWR is the maximum allowable weight of the vehicle, including passengers and cargo, and is typically found on a label inside the driver’s side door.

For passenger automobiles, including cars, light trucks, and vans with a GVWR of 6,000 pounds or less, annual depreciation deductions are capped. For a vehicle placed in service in 2025, the maximum first-year depreciation, including bonus depreciation, is $20,200. Without bonus depreciation, the first-year limit is $12,200. These limits continue for subsequent years.

Vehicles with a GVWR over 6,000 pounds, such as many heavy SUVs, pickup trucks, and vans, are exempt from these luxury auto depreciation limits. This allows businesses to deduct a larger portion of the vehicle’s cost in the first year through Section 179 and bonus depreciation. For heavy SUVs (between 6,001 and 14,000 pounds GVWR), the Section 179 deduction is capped at $31,300 for 2025. Vehicles over 14,000 pounds GVWR generally do not have this specific Section 179 cap and can often be fully expensed.

Acquiring a heavier vehicle, if it meets the business-use requirement of over 50%, can offer more substantial immediate tax deductions compared to a lighter passenger vehicle. For instance, a heavy SUV costing $60,000 and used 100% for business could have a Section 179 deduction of $31,300, with the remaining cost eligible for bonus depreciation. Always verify a vehicle’s specific GVWR to determine its eligibility for these enhanced deductions.

Essential Recordkeeping for Deductions

Meticulous recordkeeping is paramount for substantiating vehicle expenses to the IRS. Taxpayers must maintain adequate records or sufficient evidence to support their claims. Inaccurate or incomplete records can lead to the denial of deductions, penalties, and interest during an audit.

For mileage logs, each business trip should be documented with the date, destination, specific business purpose, and starting and ending odometer readings. The IRS emphasizes “contemporaneous” recordkeeping, meaning entries should be made at or near the time of the trip.

If claiming actual expenses, detailed receipts for all vehicle-related costs are necessary. This includes receipts for gasoline, oil changes, repairs, maintenance, insurance premiums, and vehicle registration fees. Proof of purchase, such as a bill of sale or loan documents, is also important to establish the vehicle’s cost and date it was placed in service for depreciation purposes.

For vehicles subject to GVWR rules, documentation confirming the vehicle’s GVWR is advisable. Calendar or appointment book entries can further support the business purpose of trips. Maintaining these records consistently throughout the tax year helps ensure compliance and provides the necessary evidence if the IRS questions the deductions claimed.