Can You Write Off Buying a Car for Business?

Using a vehicle for business can lead to valuable tax deductions, reducing taxable income. These deductions acknowledge costs incurred when a vehicle is integral to generating revenue. Understanding how to claim these expenses is important for business owners and self-employed individuals to manage tax obligations. The IRS provides guidelines on what qualifies, available deduction methods, and necessary record-keeping.

Qualifying for a Vehicle Deduction

To deduct a vehicle’s cost, its use must primarily be for business. This means it is integral to your trade or business, such as traveling between job sites, visiting clients, or making deliveries.

Travel between different work locations within your tax home area is business use, as is going to a temporary work site if you have a regular place of business. Commuting from home to your primary place of business is typically not deductible, even if business-related tasks are performed during that commute.

Only the business portion of the vehicle’s use is deductible. If used for both business and personal purposes, taxpayers must allocate expenses based on the business use percentage. For instance, if a car is 70% for business and 30% for personal activities, only 70% of eligible expenses are deductible. For Section 179 and special depreciation, the vehicle must be over 50% for business.

Qualifying vehicles include cars, light trucks, and vans. The IRS categorizes vehicles by gross vehicle weight rating (GVWR), influencing deduction amounts. Vehicles under 6,000 pounds GVWR are light; those between 6,000 and 14,000 pounds GVWR are heavy. Vehicles over 14,000 pounds GVWR or modified for non-personal use may have different rules. The business must own or lease the vehicle to claim deductions.

Methods for Deducting Vehicle Costs

Taxpayers have two primary methods for deducting vehicle costs: standard mileage rate or actual expense. The choice depends on individual circumstances and can significantly impact the deductible amount.

The standard mileage rate offers a simplified approach, deducting a set rate per business mile. This IRS-adjusted rate covers gas, oil, maintenance, insurance, and depreciation. For 2025, the rate is 70 cents per mile. This method is preferred for simplicity and reduced record-keeping. If used in the first year a vehicle is placed in service, the actual expense method generally cannot be used for that vehicle in subsequent years.

The actual expense method allows deducting specific business costs, including fuel, oil, repairs, insurance, registration fees, car loan interest, and depreciation. Business parking fees and tolls are also deductible. This method requires detailed record-keeping of all vehicle expenses.

Depreciation is a significant component of the actual expense method, allowing businesses to recover vehicle cost over its useful life. The Modified Accelerated Cost Recovery System (MACRS) is the general method for depreciating business vehicles, spreading cost over a five-year recovery period. MACRS typically uses an accelerated depreciation schedule, allowing larger deductions in earlier years.

In addition to MACRS, businesses may utilize Section 179 deduction and bonus depreciation for immediate expensing of vehicle costs. Section 179 allows businesses to deduct the full purchase price of qualifying property, including certain vehicles, in the year placed in service. This deduction has annual limits and phases out if total equipment purchases exceed a threshold. For 2025, the Section 179 deduction limit is $1,250,000, with a total equipment spending cap of $3,130,000.

Bonus depreciation allows an additional percentage of cost to be deducted in the first year. For 2025, the rate is 40%. It can be combined with Section 179 to maximize first-year deductions.

Special Considerations for Vehicle Deductions

Specific rules and limitations apply to vehicle deductions, particularly concerning vehicle type and business use percentage. These considerations significantly impact the deductible amount.

Passenger automobiles (cars, light trucks, and vans under 6,000 pounds GVWR) are subject to annual “luxury auto” depreciation limits. These limits cap depreciation, including Section 179 and bonus depreciation, claimed each year. For a passenger vehicle placed in service in 2025, the first-year depreciation limit with bonus depreciation is $20,200. Limits are adjusted annually for inflation.

Heavy SUVs, pickup trucks, and vans (over 6,000 pounds GVWR) are treated differently for deductions. These vehicles are generally exempt from luxury vehicle depreciation limits, allowing larger Section 179 deductions. For 2025, qualifying heavy vehicles may be eligible for a Section 179 deduction up to $31,300.

Vehicles are “listed property” by the IRS, subject to stricter substantiation requirements. If business use falls below 50% after the first year, certain depreciation may be recaptured, and subsequent depreciation must be calculated using a straight-line method.

When a trade-in is part of a new vehicle purchase, its tax treatment affects the new vehicle’s depreciation basis. The old vehicle’s adjusted basis is generally added to cash paid to determine the new vehicle’s basis. This impacts depreciation calculations.

Personal use of a business vehicle directly reduces the deductible amount. Only the percentage of expenses or depreciation corresponding to business use is deductible. Accurate records of business and personal mileage are necessary to calculate the deductible portion.

Record Keeping for Vehicle Deductions

Accurate, detailed record keeping is crucial for substantiating vehicle deductions and demonstrating IRS compliance. Without proper documentation, deductions may be disallowed upon audit.

A mileage log is key, regardless of the deduction method. It should include date, destination, purpose, and starting/ending odometer readings for each business trip. Recording total annual mileage for business and personal use is also advisable. The IRS expects records to be kept concurrently with travel.

In addition to mileage, taxpayers using the actual expense method must retain receipts for all vehicle expenditures. This includes gas, oil changes, repairs, insurance premiums, registration fees, and car loan interest. Receipts provide evidence of costs incurred.

Records of the vehicle’s original purchase are important. Documentation should include purchase price, date placed in service for business, and trade-in details. This information is necessary for calculating depreciation and other first-year deductions. Supporting materials like a business calendar can corroborate trip purposes. Retain all vehicle records for at least three years from the tax return filing date.

Claiming Vehicle Deductions

Once qualifying criteria are met and records maintained, the final step is reporting vehicle deductions on appropriate tax forms. Specific forms depend on the business structure.

For sole proprietors, independent contractors, and single-member LLCs, vehicle expenses are typically reported on Schedule C (Form 1040). This form has specific lines for car and truck expenses; if the actual expense method is used, depreciation is also part of this calculation.

If claiming depreciation (including Section 179 or bonus depreciation), taxpayers need to file Form 4562. This form calculates and reports depreciation deductions for business property, including vehicles. Part I of Form 4562 is for Section 179 deductions; Part V is for listed property, including vehicles used for both business and personal purposes. Form 4562 is generally attached to the main business tax return, such as Schedule C.

Corporations file expenses on Form 1120; partnerships report them on Form 1065, often with supporting schedules. Accurate reporting is important regardless of business entity.

Claiming vehicle deductions can impact self-employment tax. By reducing net income from a self-employed business, these deductions can lower income subject to self-employment tax. Ensure all reported deductions are accurate and fully supported by detailed records, as the IRS may scrutinize vehicle expense claims.