Can You Write Off Car Payments for an LLC?

You cannot directly write off the entire car payment for a vehicle used in your Limited Liability Company (LLC), but the Internal Revenue Service (IRS) allows deductions for costs associated with its business use. A car loan payment has two parts: principal and interest. The principal portion, which reduces the loan balance, is never a deductible business expense.

However, the interest paid on the car loan and other operational costs are deductible. The tax code also allows businesses to recover the vehicle’s cost over time through depreciation.

Deducting Car Expenses Two Ways

The IRS provides two methods for deducting vehicle expenses: the Standard Mileage Rate and the Actual Expense Method. A business must choose one method per vehicle per year, as they are mutually exclusive.

For both methods, you must determine the “business use percentage.” To calculate this, divide the total miles driven for business by the total miles driven for all purposes during the year. For example, if you drive 15,000 business miles and 25,000 total miles, your business use percentage is 60%.

This percentage is applied to most costs under the Actual Expense Method and is used to separate deductible business miles from personal miles under the Standard Mileage Rate. Commuting miles between your home and primary place of business are considered personal miles and are not deductible.

The Standard Mileage Rate Method

The Standard Mileage Rate method simplifies calculating your vehicle deduction. Instead of tracking individual costs, you use a rate set annually by the IRS. For 2025, the business standard mileage rate is 70 cents per mile, which covers costs like gasoline, maintenance, insurance, and depreciation.

To calculate the deduction, multiply the total business miles driven by the standard rate. For instance, 10,000 business miles in 2025 results in a $7,000 deduction.

Certain expenses are not included in the standard rate and can be deducted separately. These include the business portion of interest on a vehicle loan, parking fees, and tolls from business travel. If you choose this method for a car you own, you must use it in the first year the car is available for use in your business.

The Actual Expense Method

The Actual Expense Method can result in a larger deduction for vehicles with high operating costs. This method allows you to deduct the business use percentage of all specific costs to operate the vehicle. Qualifying expenses include:

• Fuel and oil changes
• Repairs and tires
• Insurance and registration fees
• Interest paid on the vehicle loan

A major part of this method is depreciation, the process of recovering the vehicle’s purchase price over its useful life. The IRS uses the Modified Accelerated Cost Recovery System (MACRS), and businesses may use special rules like Section 179 expensing or bonus depreciation to deduct a large portion of the vehicle’s cost in the first year.

These options have limitations. For 2025, bonus depreciation is set at 40%, and the IRS imposes “luxury auto limits” on passenger vehicles. The maximum first-year depreciation for a vehicle placed in service in 2025 is $20,200. Heavy vehicles with a Gross Vehicle Weight Rating (GVWR) over 6,000 pounds have a higher Section 179 deduction limit of $31,300 for some SUVs.

Vehicle Ownership and Your LLC

Deductions are also influenced by whether the LLC or one of its members owns the vehicle. Each structure has different administrative and tax implications.

If the LLC holds the title to the vehicle, it pays for all costs directly from its business accounts, including loan payments, fuel, and insurance. The LLC then claims the vehicle deduction on its business tax return. The vehicle must be titled and insured in the LLC’s name.

When a member personally owns the vehicle but uses it for LLC business, the company can reimburse the owner through an “accountable plan.” This is a formal reimbursement arrangement that follows IRS rules. The member submits documentation of their business mileage or actual expenses to the LLC, and the reimbursement is a deductible expense for the LLC and is not taxable income to the member.

Required Recordkeeping for Vehicle Deductions

The IRS requires detailed and contemporaneous records to substantiate any business vehicle deduction, regardless of the method used. These records must be created at or near the time the expenses or mileage occurred.

A mileage log is mandatory for anyone claiming a vehicle deduction. This log must document the following for each business trip:

• The date
• The business destination
• The specific business purpose of the trip
• The number of miles driven

It is also a best practice to record the vehicle’s starting and ending odometer reading for the tax year to establish total mileage. If you use the Actual Expense Method, you must also keep all receipts, invoices, and canceled checks for every expense you claim. Without this proof of payment, the IRS can deny the deduction.