Can You Write Off a Vehicle Purchase for Business?

Purchasing a business vehicle is a significant investment. Understanding how to deduct its cost effectively is important for many business owners. The Internal Revenue Service (IRS) offers ways to recover a portion of these expenses, reducing taxable income. This guide clarifies vehicle deduction rules, from qualification to record-keeping.

Qualifying Your Vehicle for Business Deductions

To qualify for a business deduction, a vehicle must be “ordinary and necessary” for business. Only its business use is deductible.

Commuting between home and a regular workplace is non-deductible. However, travel between different work locations, client visits, making deliveries, or running business errands qualify. For mixed business and personal use, allocate expenses by business percentage. For example, 60% business use means 60% of qualifying expenses are deductible.

Choosing Your Deduction Method

Businesses have two methods for deducting vehicle expenses: the standard mileage rate or the actual expenses method. Choice depends on vehicle cost, business driving extent, and record-keeping preference.

The standard mileage rate is a simplified approach, allowing a set amount per mile. For 2024, this rate is 67 cents per business mile, increasing to 70 cents for 2025. This rate covers most operating costs: depreciation, fuel, oil, maintenance, and insurance. Parking fees and tolls for business purposes can be deducted separately. If the standard mileage rate is chosen in the first year a vehicle is placed in business service, you can switch to the actual expense method later.

The actual expenses method allows deducting specific vehicle operating costs. These include gas, oil, repairs, tires, insurance, registration, and car loan interest. Depreciation is also included. This method requires more detailed record-keeping, requiring tracking of all individual expenses. If the actual expenses method is chosen initially, you must continue using it for the vehicle’s entire service life and cannot switch to the standard mileage rate.

Deducting the Vehicle’s Cost Over Time

Beyond operating expenses, businesses can recover a vehicle’s purchase price over time through depreciation. Depreciation spreads an asset’s cost over its useful life. The Modified Accelerated Cost Recovery System (MACRS) is the standard method for depreciating business property, including vehicles.

IRC Section 179 allows businesses to deduct the full purchase price of qualifying equipment, including vehicles, in the year placed in service. For 2024, the maximum Section 179 deduction is $1,220,000, with a phase-out beginning when total equipment placed in service exceeds $3,050,000. For 2025, the maximum deduction increases to $1,250,000, and the phase-out threshold rises to $3,130,000. To qualify, the vehicle must be over 50% for business use.

Bonus depreciation offers an additional first-year deduction for a large percentage of an asset’s cost. For property placed in service in 2024, the bonus depreciation rate is 60%. While scheduled to decline to 40% for 2025, new legislation, the One Big Beautiful Bill Act, reinstates 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. This means businesses can potentially deduct the entire cost of eligible vehicles in the acquisition year. Bonus depreciation applies after any Section 179 deduction.

Applying Special Deduction Rules and Limits

Specific rules and limits apply to vehicle deductions, especially for higher-value vehicles. IRC Section 280F imposes annual depreciation limits on passenger automobiles, often called “luxury car limits,” regardless of purchase price. These limits apply to both Section 179 and bonus depreciation. For passenger vehicles placed in service in 2024, the first-year depreciation limit, including bonus depreciation, is $20,400. For 2025, this limit is $20,200. If a vehicle’s business use drops below 50% after deductions, a portion of the depreciation may need to be recaptured as income.

Vehicles with a Gross Vehicle Weight Rating (GVWR) exceeding 6,000 pounds, such as many SUVs, trucks, and vans, are often exempt from these luxury vehicle limits. This exemption can make them eligible for larger Section 179 or bonus depreciation. For these heavy vehicles, the Section 179 deduction is capped at $30,500 for 2024 and $31,300 for 2025. Vehicles with a GVWR over 14,000 pounds or modified for work-related, non-personal use (e.g., delivery vans) may qualify for the full Section 179 deduction without this cap.

For leased vehicles, the “lease inclusion amount” rule applies. This rule adjusts deductible lease payments for expensive leased cars to prevent circumvention of luxury vehicle depreciation limits. If you choose the standard mileage rate for a leased vehicle, actual lease payments are not separately deductible, as depreciation is factored into the rate. However, if the actual expense method is used, the business portion of the lease payment can be deducted, and depreciation is not claimed.

Maintaining Essential Records

Accurate record-keeping is essential for substantiating vehicle deductions. The IRS requires specific details for business use. For each business trip, record date, total mileage, destination, and business purpose.

While a detailed log of every trip is necessary, you are not required to record individual trip odometer readings. Instead, record the odometer reading at the beginning and end of each tax year, and when a new vehicle is placed in service. Records can be kept in various formats: paper mileage logs, electronic spreadsheets, or dedicated mileage tracking applications. The IRS emphasizes “contemporaneous record-keeping,” meaning records should be created at or near the time of the expense or trip.

Beyond mileage logs, retain all supporting documentation for actual expenses. This includes receipts for fuel, repairs, insurance premiums, and vehicle registration fees. Vehicle purchase or lease agreements are also important. Since vehicle deductions are often scrutinized by the IRS during audits, maintaining comprehensive and accurate records is crucial to demonstrating claim legitimacy. Keep these records for at least three years from the tax return filing date.