Can You Write Off a Car Purchase for Business?

When a vehicle is used for business purposes, its purchase can often lead to tax deductions. These deductions offset the costs associated with operating a vehicle for income-generating activities, reducing a business’s taxable income. The ability to deduct such a purchase depends on the extent of business use and the specific method chosen for calculating expenses. Understanding these considerations is important for business owners and self-employed individuals to manage their tax obligations.

Determining Eligibility

To deduct car purchase expenses, the vehicle must be used for business purposes, directly supporting income-producing activities. Business use includes tasks like visiting clients, making deliveries, traveling between different business locations, or running errands directly related to your trade or business. Commuting from home to a regular workplace is not considered business use and is not deductible.

The percentage of a vehicle’s business versus personal use is a key factor. If a vehicle is used for both business and personal travel, only the portion attributed to business use is deductible. For instance, if a vehicle is used 70% for business and 30% for personal activities, only 70% of the eligible expenses can be claimed.

Generally, self-employed individuals and business owners are eligible to deduct vehicle expenses. This includes independent contractors, freelancers, and small business entities. Employees typically cannot deduct unreimbursed business vehicle expenses. This is due to changes in tax law that suspended miscellaneous itemized deductions for employees.

Understanding Deduction Methods

When deducting vehicle expenses, taxpayers generally have two primary methods: the standard mileage rate or the actual expense method. Choosing between these methods can significantly impact the deductible amount. The initial choice for an owned vehicle can affect future options, while for a leased vehicle, the standard mileage rate must be used for the entire lease period if chosen initially.

The standard mileage rate offers a simplified approach to calculating vehicle deductions. This method allows taxpayers to deduct a set amount for each mile driven for business purposes. The rate, adjusted annually by the Internal Revenue Service (IRS), covers operating costs like depreciation, gas, oil, maintenance, and insurance. For example, the standard mileage rate for 2025 is 70 cents per mile. While straightforward and requiring less detailed record-keeping, this method may not always result in the largest deduction, especially for vehicles with high operating costs.

Alternatively, the actual expense method allows for the deduction of the actual costs incurred in operating the vehicle for business. This method requires tracking all vehicle-related expenses. Common deductible expenses under this method include gas, oil, repairs, tires, insurance premiums, registration fees, and depreciation. Additionally, the interest paid on a loan used to purchase a business vehicle can be deducted as an actual expense, proportionate to the vehicle’s business use.

Depreciation is a component of the actual expense method, allowing businesses to recover the vehicle’s cost over its useful life. The tax code provides rules for calculating depreciation, which can be accelerated.

Section 179 Deduction

One such provision is the Section 179 deduction, which allows businesses to expense the cost of qualifying property, including eligible vehicles, in the year they are placed in service. This means the vehicle’s cost can be deducted upfront. For 2025, the maximum Section 179 deduction is $1,250,000, with a total equipment spending cap of $3,130,000, after which the deduction begins to phase out. To qualify, the vehicle must be used more than 50% for business purposes, and both new and used vehicles can be eligible.

Bonus Depreciation

Another accelerated depreciation method is bonus depreciation, which permits businesses to deduct an additional percentage of the vehicle’s cost in the first year it is placed in service. This deduction can be taken in conjunction with or instead of the Section 179 deduction. For assets placed in service in 2025, the bonus depreciation rate is 40%. Unlike Section 179, bonus depreciation is not subject to an annual dollar limit or limited by the business’s taxable income, although the percentage of business use still dictates the deductible amount.

Choosing between the standard mileage rate and actual expenses involves evaluating the specific costs of the vehicle and the record-keeping capabilities of the business. While the standard mileage rate offers simplicity, the actual expense method, especially with the use of Section 179 and bonus depreciation, can often lead to a larger deduction for purchased vehicles.

Vehicle Specific Considerations

The type and weight of a business vehicle play a role in determining available deductions, particularly concerning depreciation limits. The IRS categorizes vehicles, and these classifications impact the maximum amounts that can be expensed. Understanding these distinctions helps maximize tax benefits.

For passenger automobiles, defined as vehicles with a gross vehicle weight rating (GVWR) of 6,000 pounds or less, specific depreciation limits apply. These “luxury auto” limits cap the annual depreciation deductions, even if the vehicle is used 100% for business. These caps are adjusted annually and can restrict the amount of the vehicle’s cost that can be written off each year.

Conversely, heavy SUVs, pickups, and vans, which have a GVWR exceeding 6,000 pounds, often benefit from more favorable tax treatment, as they are typically exempt from “luxury auto” depreciation limits. For 2025, a specific Section 179 deduction cap applies to heavy SUVs, allowing for an immediate write-off of up to $31,300, provided the vehicle meets the business use requirements.

Furthermore, certain vehicles weighing over 14,000 pounds GVWR, or those specifically modified for non-personal use, may qualify for a full Section 179 deduction of their purchase price. This category includes vehicles like shuttle vans designed to carry more than nine passengers or delivery vans with large, inaccessible cargo areas.

Documentation and Substantiation

Maintaining thorough and accurate records is essential for substantiating any car purchase deductions claimed for business use. The IRS requires detailed documentation to support all deductions. A lack of proper records can lead to the disallowance of expenses. This record-keeping is a mandatory component of tax compliance.

For mileage-based deductions, a mileage log is essential. This log should include the date of each business trip, the destination, the business purpose, and the starting and ending odometer readings. Recording this information at or near the time of the trip is recommended to ensure accuracy.

When using the actual expense method, detailed records of all vehicle-related expenditures are necessary. This includes receipts for gas, oil changes, repairs, maintenance services, insurance payments, and registration fees. Proof of purchase for the vehicle, such as a bill of sale or loan documents, is also required to support the initial cost for depreciation calculations.

Taxpayers should keep records of the vehicle’s total annual mileage to accurately calculate the business use percentage. Records should be retained for at least three years from the date the tax return was filed, and longer if the vehicle is being depreciated over several years. Various tools, including mobile applications, notebooks, or spreadsheets, can assist in maintaining these records.