How to Write Off a Car as a Business Expense

Utilizing a vehicle for work purposes can lead to a tax deduction for many businesses and self-employed individuals. The Internal Revenue Service (IRS) provides detailed guidelines for substantiating and claiming these expenses. Understanding these rules is the first step toward accurately reflecting vehicle costs on a tax return and lowering your overall tax liability.

Qualifying for the Deduction

To claim a vehicle as a business expense, its use must meet specific criteria from the IRS based on the distinction between business, commuting, and personal use. Business use includes travel between two different work locations, visiting clients or customers, and driving to a temporary worksite. For example, a consultant driving from their office to a client’s headquarters or a contractor transporting materials to a job site would be considered business use.

Commuting, which the IRS defines as travel between your home and your main place of work, is a personal expense and is not deductible. However, if your home is your principal place of business, travel from your home to another work location in the same trade or business can qualify. For instance, a freelance photographer whose office is in their home can deduct mileage from their home to a photo shoot location.

The vehicle deduction is based on the business-use percentage. This figure is calculated by dividing the total miles driven for business purposes by the total miles driven in the year. For example, if you drive 15,000 miles in a year and 12,000 were for business-related trips, your business-use percentage is 80%.

Choosing Your Deduction Method

After confirming a vehicle’s use qualifies for a tax deduction, the next step is to select a method for calculating the expense. The IRS permits two distinct approaches: the standard mileage rate and the actual expense method. A taxpayer must choose one method per vehicle per year, and the choice can have long-term consequences.

The standard mileage rate is a simplified option that allows you to deduct a set amount for each business mile driven. For the 2025 tax year, this rate is 70 cents per mile. This per-mile rate is designed to cover the variable costs of operating a vehicle, such as gasoline, as well as fixed costs like depreciation and insurance. You cannot separately deduct these individual operating costs, though you can still deduct business-related parking fees and tolls.

The actual expense method involves tracking all costs incurred to operate the vehicle for the year, including fuel, repairs, insurance, and depreciation. This method requires more diligent record-keeping but can yield a larger deduction, particularly for vehicles with high operating costs. If you choose the actual expense method for a car you own in the first year of business use, you cannot switch to the standard mileage rate for that car in subsequent years.

Calculating the Actual Expense Deduction

The actual expense method requires totaling all vehicle operation costs and multiplying that amount by the business-use percentage. These costs must be documented throughout the year and can include:

• Gasoline and oil
• Maintenance and repairs
• Tires
• Insurance premiums
• Vehicle registration fees

A component of the actual expense calculation is depreciation, which allows a business to recover the vehicle’s purchase price over time. Taxpayers can accelerate this deduction in the first year. Section 179 of the tax code allows for immediately expensing a portion of a vehicle’s cost, with the 2025 deduction for heavy vehicles capped at $31,300.

Businesses may also claim bonus depreciation, which for 2025 allows an additional first-year deduction of 40% of the vehicle’s cost after any Section 179 deduction. The IRS imposes “luxury auto” limits on passenger vehicles. For a car placed in service in 2025, the maximum first-year depreciation, including bonus depreciation, is $20,200. These limits are reduced if the vehicle is not used 100% for business, and to claim any depreciation, business use must exceed 50%.

Recordkeeping Requirements

The IRS requires detailed records to substantiate your deduction, and failure to maintain them can result in the disallowance of the expense during an audit. For both deduction methods, a mileage log is mandatory. A compliant log must document each business trip and include:

• The date of the trip
• The starting and ending odometer readings
• The total mileage driven
• The specific business purpose of the travel

The log should specify the client’s name or the nature of the business conducted. While paper logbooks are acceptable, many people use GPS-enabled smartphone apps to track trips.

If you use the actual expense method, you must also keep all receipts, invoices, and canceled checks for every cost you claim. This includes proof of payment for fuel, repairs, insurance, and registration. These documents must be organized and retained for at least three years from the date the tax return is filed.

Reporting the Deduction on Your Tax Return

The forms used to report the deduction depend on your business structure, but the process is standardized for sole proprietors and single-member LLCs filing a Schedule C. You will use IRS Form 4562, “Depreciation and Amortization,” to report depreciation from the actual expense method. Part V of this form is for listing vehicles and answering questions about their use, including mileage and whether you have evidence to support the deduction.

After completing Form 4562, the total expense is transferred to your main business profit and loss form. For self-employed individuals, this is Schedule C (Form 1040), “Profit or Loss from Business.” The total deduction is entered on the line for car and truck expenses, which reduces your gross business income and lowers your tax liability.