Can You Write Off a Tesla on Your Taxes?

You can often write off a Tesla on your taxes, but how the vehicle is used determines your eligibility. Tax benefits for a Tesla come from two sources: deductions and credits. Deductions lower your taxable income by accounting for the vehicle’s business cost, while a tax credit provides a dollar-for-dollar reduction of the taxes you owe. These two benefits are governed by separate sets of rules and have different qualification requirements.

The Business Use Requirement

The ability to deduct any vehicle expense hinges on one rule: it must be used for business. Business use involves travel related to your profession, like driving to meet clients or traveling between work locations. The daily commute from your home to your primary workplace is considered a personal trip and is not deductible.

To substantiate deductions, you must calculate your business use percentage. This is found by dividing the total miles driven for business by the total miles driven overall. For example, if 15,000 of 20,000 total miles were for business, your business use is 75%. This percentage is then applied to your vehicle expenses to determine the deductible portion.

The IRS requires a detailed mileage log to prove your business use. An adequate log must include the date, starting and ending odometer readings, total mileage, and the business purpose for each trip. Without this documentation, your deductions could be disallowed in an audit.

Claiming Depreciation on Your Tesla

Depreciation is the method for writing off the cost of a business asset, allowing you to recover its value over time. For a purchase like a Tesla, tax rules provide ways to accelerate this deduction into the first year the vehicle is placed in service. These methods can result in a substantial tax benefit, but the rules depend on the specific Tesla model.

Section 179 Deduction

The Section 179 deduction allows business owners to expense the cost of qualifying equipment in the year of purchase instead of depreciating it over time. For 2025, the maximum deduction is $1,250,000. However, the amount you can claim for most passenger vehicles is restricted by “luxury auto” limits, which makes certain Tesla models unique for tax purposes.

The Heavy Vehicle Exception

An exception to the luxury auto limits applies to vehicles with a manufacturer’s Gross Vehicle Weight Rating (GVWR) exceeding 6,000 pounds. The GVWR is the maximum loaded weight of the vehicle, including passengers and cargo, and is found on a sticker inside the driver’s door jamb. The Tesla Model X and certain configurations of the Model Y and Cybertruck have a GVWR over this threshold, classifying them as heavy vehicles.

This classification allows for a much larger first-year deduction. For these heavy vehicles, the Section 179 deduction is limited to $31,300 for vehicles placed in service in 2025. You must verify the GVWR of your specific vehicle, as different trim levels can have different ratings.

Bonus Depreciation

Bonus depreciation is another accelerated depreciation method that can be used with or instead of the Section 179 deduction. Unlike Section 179, there is no business income limitation, but it is being phased out. For property placed in service in 2025, the bonus depreciation rate is 40% of the asset’s cost. For a heavy Tesla that qualifies for the 6,000-pound exception, a business owner could take the $31,300 Section 179 deduction and then apply 40% bonus depreciation to the remaining cost, multiplied by the business use percentage.

Standard “Luxury Auto” Limits

If you purchase a Tesla that does not meet the 6,000-pound GVWR requirement, such as the Model 3 or some Model Y versions, it is subject to lower luxury auto depreciation limits. For a passenger car placed in service in 2025, the maximum first-year depreciation deduction, including Section 179 and bonus depreciation, is $20,200. These limits are adjusted annually for inflation.

Qualifying for the Clean Vehicle Tax Credit

Separate from depreciation deductions, the Clean Vehicle Tax Credit directly reduces your tax liability on a dollar-for-dollar basis. This credit can be worth up to $7,500 for a new vehicle, but the eligibility rules apply to the vehicle, the buyer, and the purchase transaction.

Vehicle Requirements

For a new Tesla to be eligible for the credit, its Manufacturer’s Suggested Retail Price (MSRP) cannot exceed certain caps: $80,000 for SUVs and trucks, and $55,000 for other cars. The MSRP includes manufacturer-installed options but excludes destination fees and dealer-installed accessories. The vehicle must also meet evolving requirements related to the sourcing of its battery components and critical minerals. These rules determine whether a vehicle qualifies for the full $7,500 credit, a partial $3,750 credit, or no credit at all. The IRS and Department of Energy maintain an official list of qualifying vehicles, which buyers should consult before purchasing.

Buyer Requirements

The credit is also limited by the buyer’s income. To claim the credit for a new vehicle, your modified adjusted gross income (AGI) must not exceed specific thresholds in either the year of purchase or the preceding year. For 2025, the limits are $300,000 for married couples filing jointly, $225,000 for heads of household, and $150,000 for all other filers. If your income surpasses these caps, you cannot claim the credit. A separate used clean vehicle credit offers up to $4,000 and has lower income and price caps.

How to Claim

There are two ways to receive the benefit of the Clean Vehicle Tax Credit. The first option is to transfer the credit to the dealership at the time of purchase. The dealer verifies your eligibility and applies the credit amount directly as a discount, reducing the vehicle’s price. The second option is to claim the credit yourself when you file your annual income tax return. Even if you transfer the credit, you must still file a form with your tax return to report the transfer.

Information and Forms Needed to Claim Your Tax Benefits

Claiming tax benefits for your Tesla requires gathering specific information. You will need your detailed mileage log to establish your business use percentage, the vehicle’s Gross Vehicle Weight Rating (GVWR), its total cost basis, and the date it was placed in service. For the Clean Vehicle Credit, you also need the official MSRP from the window sticker.

Two primary IRS forms are used to report these benefits. Form 4562, Depreciation and Amortization, is where you will claim any depreciation deduction. On this form, you list the vehicle, its cost, the date placed in service, and report your business mileage. Part I of the form is used to make the Section 179 election.

Form 8936, Clean Vehicle Credits, is used for the tax credit. This form requires the vehicle’s VIN, its MSRP, and information from the seller’s report you received at purchase. You must file Form 8936 to claim the credit or to report a credit that you transferred to the dealer.

Writing Off Ongoing Tesla Expenses

Beyond the initial purchase price, the ongoing costs of operating your Tesla for business can also provide tax deductions. The IRS provides two distinct methods for deducting these operational expenses: the actual expense method and the standard mileage rate. The choice between these methods has consequences for how you treat depreciation.

Actual Expense Method

Under the actual expense method, you track and deduct the business portion of all costs incurred to operate the vehicle. Each cost must be multiplied by your business use percentage to find the deductible amount. For a Tesla, deductible expenses include:

• The cost of electricity for charging, based on home utility rates or public charging fees
• Insurance
• Registration fees
• Tires
• Repairs

Standard Mileage Rate

As an alternative, you can use the standard mileage rate, which is simpler than tracking actual expenses. For 2025, the rate is 70 cents per mile driven for business. To calculate your deduction, multiply your total business miles by this rate. For example, 10,000 business miles results in a $7,000 deduction.

If you use the standard mileage rate, you cannot claim depreciation deductions like Section 179 or bonus depreciation, as the rate includes a component for depreciation. You also cannot deduct actual operating costs like electricity or insurance. However, you can still separately deduct the business portion of car loan interest, parking fees, and tolls.

The choice to use the standard mileage rate must be made in the first year the car is used for business. If you start with the actual expense method, you cannot switch to the standard mileage rate for that vehicle in later years.