How to Write Off a Car for Your LLC

“Writing off a car” for an LLC means deducting business-related vehicle expenses from the company’s taxable income. This practice allows an LLC to reduce its overall tax liability by accounting for costs incurred when operating vehicles for business activities.

Determining Business Use Eligibility

For vehicle expenses to be deductible, the vehicle must be used for legitimate business purposes by the LLC. Only the portion of the vehicle’s use directly related to business operations is eligible for deductions. Examples of business use include traveling to client meetings, making deliveries, visiting job sites, or transporting supplies. Personal use includes commuting, personal errands, or vacation travel.

If a vehicle serves both business and personal functions, only the business-use percentage is deductible. The Internal Revenue Service (IRS) mandates that expenses must be “ordinary and necessary,” meaning they are common and accepted in the industry and helpful for the business. An expense is not considered ordinary and necessary if it is lavish or extravagant.

The vehicle’s use must directly benefit the LLC’s operations, meaning expenses must be incurred by the LLC for its trade or business, not for the personal benefit of its members or employees. Properly distinguishing between business and personal mileage is essential to ensure compliance and maximize allowable deductions.

Choosing a Deduction Method

LLCs have two primary methods for deducting vehicle expenses: the standard mileage rate or the actual expense method. Each approach has distinct rules and implications for record-keeping. Selecting the most advantageous method depends on various factors, including annual mileage, vehicle costs, and administrative preferences.

The standard mileage rate offers a simplified way to calculate deductions. For 2025, the business standard mileage rate is 70 cents per mile. This rate covers operating costs like depreciation, fuel, oil, repairs, insurance, and maintenance. Tolls and parking fees for business purposes are deductible in addition to the standard mileage rate. This method is generally favored for its ease of use, as it reduces the need to track individual expenses.

The actual expense method involves deducting the actual costs of operating the vehicle for business. This approach requires meticulous record-keeping for all vehicle-related expenditures. Deductible actual expenses include fuel, oil, repairs, maintenance, tires, insurance premiums, vehicle registration fees, and interest paid on a car loan. If the vehicle is leased, the business-use portion of lease payments can be deducted. Parking fees and tolls for business travel are also deductible under this method.

When choosing between methods, if the standard mileage rate is chosen in the first year an owned vehicle is placed in service, an LLC can switch to the actual expense method in later years. However, if the actual expense method is chosen first for an owned vehicle, the LLC must continue using that method for the vehicle’s entire useful life. For a leased vehicle, if the standard mileage rate is elected, it must be used for the entire lease period.

Understanding Depreciation and Acquisition Methods

When an LLC uses the actual expense method, depreciation is a significant component of vehicle deductions. Depreciation allows for the recovery of the vehicle’s cost over its useful life. For tax purposes, vehicles are generally classified as five-year property under the Modified Accelerated Cost Recovery System (MACRS), which is the standard depreciation method.

Section 179 Deduction

The Section 179 deduction allows businesses to expense the full purchase price of qualifying property, including vehicles, in the year they are placed in service. For heavy SUVs and trucks (gross vehicle weight rating between 6,000 and 14,000 pounds), the Section 179 deduction is capped at $31,300 for 2025. For lighter vehicles (6,000 pounds or less GVWR), the first-year Section 179 deduction is limited to $12,200. To qualify for Section 179, a vehicle must be used more than 50% for business purposes.

Bonus Depreciation

Bonus depreciation provides an additional first-year depreciation deduction. For vehicles placed in service in 2025, the bonus depreciation rate is 40%. This can be taken after any Section 179 deduction. Bonus depreciation is available for both new and used vehicles. This bonus depreciation is scheduled to continue phasing down in subsequent years, reaching 20% in 2026 and 0% in 2027.

Luxury Vehicle Limits

Vehicles are subject to “luxury vehicle” depreciation limits, which cap the amount of depreciation that can be claimed each year. For vehicles placed in service in 2025, the maximum first-year depreciation with bonus depreciation is $20,200. Without bonus depreciation, the first-year limit is $12,200. Subsequent year limits also apply. These limits apply to passenger cars, SUVs, trucks, and vans.

Purchase vs. Lease

The choice between purchasing and leasing a vehicle has distinct tax implications. When an LLC purchases a vehicle, it can deduct depreciation (including Section 179 and bonus depreciation, if applicable) and the interest paid on a car loan. If an LLC leases a vehicle, it cannot claim depreciation because it does not own the asset. Instead, the LLC can deduct the business-use portion of the lease payments. For high-value leased vehicles, an “inclusion amount” may need to be added back to income to account for the tax benefits of leasing a luxury vehicle.

Essential Record Keeping for Deductions

Thorough record-keeping is paramount for substantiating vehicle deductions claimed by an LLC. Without proper documentation, the IRS can disallow deductions, leading to tax liabilities and penalties.

For mileage deductions, detailed mileage logs are required. Each entry should include the date, destination, business purpose, and starting and ending odometer readings. This allows for the calculation of total business miles driven. The IRS emphasizes “contemporaneous” record-keeping, meaning entries should be made at or near the time of the trip.

When claiming actual expenses, retain receipts for all costs incurred. This includes receipts for fuel, oil changes, repairs, maintenance, tires, insurance payments, and vehicle registration fees. Also, maintain records of the vehicle’s purchase date, original cost, make, model, and Vehicle Identification Number (VIN), especially if depreciation is claimed.

Retain all records for a sufficient period to support potential audits. The IRS generally recommends keeping records for at least three years from the date the tax return was filed or the due date, whichever is later. If depreciation is claimed over several years, records should be kept for at least three years after the last depreciation deduction is taken. Some tax professionals recommend retaining business expense records, including mileage logs, for up to seven years to cover various audit possibilities. Digital record-keeping, such as scanning receipts and using mileage tracking applications, can streamline this process and provide secure backups.