Can You Write Off a Vehicle Purchase?

Business owners and self-employed individuals can deduct vehicle purchase costs or associated expenses when the vehicle is used for business, significantly reducing tax liability.

Determining Eligibility for Vehicle Deductions

For vehicle expenses to be deductible, the vehicle must be used for business purposes, directly supporting your trade or business operations. Business use includes travel to client sites, deliveries, visiting suppliers, or moving between business locations. Travel between your home and a regular workplace is personal commuting and not deductible. If your home is your principal place of business, however, travel from your home office to other business destinations can be deducted.

These deductions are available to self-employed individuals, independent contractors, freelancers, and business entities like corporations and partnerships. Employees typically cannot claim them for unreimbursed business vehicle expenses. The individual or business claiming the deduction must own or lease the vehicle.

The type of vehicle influences how deductions apply. Passenger automobiles (GVWR of 6,000 pounds or less) have specific annual depreciation limits. Vehicles with a GVWR exceeding 6,000 pounds, like certain SUVs, trucks, and vans, often qualify for more accelerated depreciation. The GVWR is typically found on a label on the driver’s side door jamb.

To qualify for accelerated deductions, the vehicle must be used more than 50% for business. If business use falls below this threshold, different depreciation rules apply, limiting first-year deductions. This business-use percentage determines the deductible portion of expenses.

Methods for Deducting Vehicle Expenses

Taxpayers can choose between two main methods for deducting vehicle expenses: the standard mileage rate or the actual expense method. This choice impacts the total deduction and record-keeping. Taxpayers typically elect the standard mileage rate in the first year a vehicle is placed in business service. They can switch to actual expenses in subsequent years, unless the vehicle is leased, in which case the standard mileage rate must be used for the entire lease period if chosen initially.

The standard mileage rate simplifies deductions by allowing a set amount per business mile driven. For 2025, the rate is 70 cents per mile. This rate covers depreciation, fuel, oil, maintenance, and insurance. Parking fees and tolls for business can be deducted separately, even when using the standard mileage rate.

Alternatively, the actual expense method allows deduction of the business portion of all vehicle-related costs, including gas, oil, repairs, maintenance, insurance, and vehicle registration fees. Depreciation is a key component, allowing the vehicle’s cost to be recovered over its useful life.

For purchased vehicles, accelerated depreciation methods can provide large first-year deductions. Section 179 allows businesses to expense the full purchase price of qualifying property, including vehicles, in the year they are placed in service, rather than depreciating them over several years. For 2025, the maximum Section 179 deduction is $2.5 million, with a phase-out beginning at $4 million of total equipment purchases. Heavy SUVs and trucks (over 6,000 lbs GVWR) have a Section 179 deduction capped at $31,300; lighter passenger vehicles (6,000 lbs GVWR or less) have a first-year limit of $12,200.

Bonus depreciation provides an additional first-year depreciation allowance for eligible property. For assets placed in service after January 19, 2025, 100% bonus depreciation is available, allowing immediate expensing of the entire cost of qualifying assets, including vehicles, after any Section 179 deduction. This benefits businesses acquiring new or used vehicles for business.

Interest paid on a vehicle loan used for business is deductible under the actual expense method. Only the portion of interest corresponding to the vehicle’s business-use percentage can be deducted. For example, if a vehicle is 70% for business, 70% of the loan interest paid is deductible.

Sales tax paid on a business vehicle can be handled in two ways. It can be added to the vehicle’s basis, increasing the depreciable amount. Alternatively, it can be deducted as part of state and local sales taxes, subject to a $10,000 annual limit (SALT cap) through 2025. This latter option requires itemizing deductions on Schedule A.

Special Considerations for Vehicle Deductions

Specific rules apply to “luxury automobiles,” which for tax purposes include passenger cars and some lighter trucks and vans, regardless of their actual cost. The IRS imposes annual depreciation limits on these vehicles. For vehicles placed in service in 2025, the maximum first-year depreciation deduction is $20,200 if bonus depreciation is claimed, and $12,200 if not. These limits apply to the combined Section 179, bonus, and regular depreciation. Limits apply annually until the vehicle is fully depreciated.

Distinguishing between personal and business use is important. Only the percentage of vehicle expenses attributable to business activities is deductible. This requires tracking all mileage, categorizing each trip as business or personal. If a vehicle is used 60% for business and 40% for personal reasons, only 60% of qualifying expenses are deductible.

Detailed record-keeping is required by the IRS to substantiate vehicle deductions. Regardless of the deduction method chosen, detailed records are necessary. For each business trip, record the date, destination, purpose, and odometer readings at the start and end. A mileage log is important, along with receipts for actual expenses like fuel, repairs, and insurance. Records should be kept contemporaneously (at or near the time of the expense or trip) for at least three years after filing the return.

When trading in a business vehicle, the tax treatment has changed. Under current law, a trade-in is treated as a sale of the old vehicle and a purchase of the new. Any gain or loss from the trade-in must be recognized and reported in the year of the transaction. The depreciable basis of the new vehicle is its full purchase price.

Leasing a vehicle for business presents distinct deduction considerations. Lease payments are deductible as a business expense. If the leased vehicle’s fair market value exceeds certain thresholds, an “inclusion amount” must be factored in. This amount reduces the deductible lease payment to prevent taxpayers from circumventing depreciation limits that apply to purchased luxury vehicles. The inclusion amount is determined by IRS tables and depends on the vehicle’s value and the year the lease began. Leased vehicles with a GVWR over 6,000 pounds are typically exempt from these inclusion amounts.