Can You Write Off a Car With an LLC?

An LLC allows owners to “write off” a car, meaning they can deduct eligible vehicle expenses to reduce the business’s taxable income. This applies when a vehicle is used for business purposes, lowering the LLC’s tax liability. Deductions hinge on meeting specific criteria related to vehicle use and meticulous record-keeping. The extent of the deduction depends on how the vehicle serves the business.

Understanding Business Vehicle Deductions

Business deductions must be “ordinary and necessary,” meaning common, accepted, and helpful for the business. For a vehicle to qualify for a tax deduction, its use must directly relate to the LLC’s business activities, not personal commuting or errands. Travel between a taxpayer’s home and a regular place of work is generally considered non-deductible commuting.

However, traveling from one work location to another, visiting customers, attending business meetings away from the regular workplace, or getting from home to a temporary workplace are examples of deductible business use. The types of expenses that can be considered for deduction include fuel, oil, repairs, tires, insurance, registration fees, and depreciation. These costs are only deductible to the extent they are incurred for business purposes.

Qualifying Your Vehicle and Use

Establishing a vehicle’s business use percentage is crucial for claiming deductions. This percentage represents the portion of the vehicle’s total mileage that is attributable to business activities. For instance, if a vehicle travels 10,000 miles in a year, and 7,000 of those miles are for business purposes, the business-use percentage is 70%. Only this business portion of expenses is deductible.

Detailed and contemporaneous record-keeping is essential to substantiate vehicle deductions. This involves maintaining a mileage log that includes the date, destination, business purpose, and mileage for each business trip. Additionally, the log should record the vehicle’s odometer readings at the beginning and end of the year. Receipts for all vehicle-related expenses, such as fuel, maintenance, and insurance, should also be retained. These accurate records are vital for demonstrating eligibility and avoiding issues during a tax audit.

Methods for Deducting Vehicle Expenses

Once a vehicle and its business use are qualified, an LLC can choose between two primary methods to calculate the deductible expenses: the Standard Mileage Rate or the Actual Expense Method. The choice often depends on which method yields a larger deduction. It is generally advisable to calculate the deduction using both methods to determine the most advantageous option.

The Standard Mileage Rate offers a simplified approach where a fixed amount per business mile is deducted. For 2025, the standard mileage rate for business use is 70 cents per mile. This rate covers the costs of depreciation, fuel, oil, maintenance, insurance, and other general operating expenses. However, parking fees and tolls incurred for business purposes can be deducted in addition to the standard mileage rate. To use this method, it must be chosen in the first year the vehicle is placed in service for business, though in subsequent years, the LLC can opt for either the standard mileage rate or actual expenses.

Alternatively, the Actual Expense Method allows for the deduction of specific costs incurred to operate the vehicle for business. This method requires tracking all vehicle-related expenses, including gas, oil, repairs, maintenance, insurance premiums, registration fees, and interest paid on a car loan. A significant component of the Actual Expense Method is depreciation. Vehicles are generally considered five-year property under the Modified Accelerated Cost Recovery System (MACRS), the standard depreciation method. This system allows for accelerated depreciation, meaning larger deductions in the earlier years of the vehicle’s life.

Section 179 Deduction

Beyond MACRS, two additional accelerated depreciation options exist: Section 179 Deduction and Bonus Depreciation. The Section 179 deduction allows businesses to expense the full purchase price of qualifying equipment, including vehicles, in the year it is placed in service, up to certain limits. For 2025, the Section 179 deduction limit is $1,250,000, and it begins to phase out when total equipment purchases exceed $3,130,000. Vehicles with a Gross Vehicle Weight Rating (GVWR) exceeding 6,000 pounds often qualify for higher Section 179 deductions, with a cap of $31,300 for heavy SUVs in 2025. To qualify for Section 179, the vehicle must be used more than 50% for business purposes.

Bonus Depreciation

Bonus Depreciation is another method that permits an additional deduction for qualifying assets. This allows businesses to deduct a percentage of an asset’s cost upfront. For assets placed in service in 2025, the bonus depreciation rate is 40%. Bonus depreciation can be taken in conjunction with Section 179 and MACRS. However, it is not subject to an annual dollar limit and can create a net loss for the business. It also requires the vehicle to be used more than 50% for business.

Implications of Personal Use and Vehicle Type

When a vehicle is used for both business and personal purposes, only the business portion of the expenses is deductible. The expenses must be allocated based on the business-use percentage. For example, if a vehicle is used 60% for business, only 60% of the total actual expenses or the standard mileage rate amount can be deducted. If a vehicle’s business use drops below 50% after special depreciation (like Section 179 or bonus depreciation) has been claimed, a portion of the previously deducted amount may need to be recaptured as ordinary income.

The type of vehicle also influences the available deductions. Passenger vehicles, defined as cars, vans, and light trucks with a GVWR of 6,000 pounds or less, are subject to “luxury car” depreciation limits under Internal Revenue Code Section 280F. For 2025, the maximum depreciation deduction for these vehicles with bonus depreciation is $20,200 in the first year. Heavier vehicles, such as certain trucks, vans, and SUVs with a GVWR exceeding 6,000 pounds, are generally exempt from these “luxury car” limits. This exemption allows them to qualify for higher Section 179 or bonus depreciation deductions, potentially enabling a full deduction of their cost in the year of purchase if business use is high.