How to Write Off a Vehicle With an LLC

An LLC structure allows business owners to deduct vehicle-related expenses, provided these expenses are directly linked to the company’s operations. The Internal Revenue Service (IRS) mandates that for any deductible expense, it must be considered “ordinary and necessary” for the business. An ordinary expense is common and accepted in a trade or business, while a necessary expense is helpful and appropriate. This approach allows businesses to reduce their taxable income by accounting for legitimate operational costs.

Establishing Vehicle Business Use

Deducting vehicle expenses for an LLC requires demonstrating the vehicle’s legitimate business use. Only the percentage of business use is eligible for deduction. Commuting from home to a regular workplace is generally considered personal use and is not deductible. However, travel between different business locations, to client meetings, or for transporting goods qualifies as business use.

An LLC can own a vehicle directly, or an individual owner or employee can use their personal vehicle for business. If a personal vehicle is used, the LLC can reimburse the individual for business mileage. Accurate tracking of business versus personal mileage is essential to calculate the deductible portion of vehicle expenses.

Selecting a Deduction Method

Businesses have two primary methods for deducting vehicle expenses: the Standard Mileage Rate and the Actual Expenses Method. The choice between these can significantly impact the deductible amount. The Standard Mileage Rate, set annually by the IRS, offers a simplified way to calculate deductions. For 2025, the business standard mileage rate is 70 cents per mile, covering various vehicle operating costs like depreciation, gas, oil, maintenance, and insurance. Separate deductions are allowed for parking fees and tolls incurred for business purposes, regardless of the method chosen.

The Actual Expenses Method requires tracking and deducting all costs associated with operating the vehicle for business. This approach is more complex due to detailed record-keeping requirements. Deductible actual expenses include fuel, oil, repairs, maintenance, tires, insurance, vehicle registration fees, lease payments, and interest on car loans. Depreciation is also a component of actual expenses, allowing businesses to recover the vehicle’s cost over its useful life. To retain the option of switching methods, businesses must generally use the Standard Mileage Rate in the vehicle’s first year of business service. If the Actual Expenses Method is chosen initially, it must be used for that vehicle going forward.

Applying Vehicle Depreciation

Depreciation allows businesses to recover the cost of an asset, such as a vehicle, over its useful life. For vehicles used for business, the Modified Accelerated Cost Recovery System (MACRS) is the standard depreciation method. Under MACRS, vehicles are generally classified as five-year property, though depreciation is spread over six calendar years. This system accelerates deductions, providing larger write-offs in the initial years of the vehicle’s life. If a vehicle’s business use drops to 50% or less, straight-line depreciation may be required instead of MACRS.

Beyond standard MACRS, two accelerated depreciation options can increase first-year deductions: Section 179 and Bonus Depreciation. The Section 179 deduction allows businesses to expense the cost of qualifying property, including certain vehicles, in the year it is placed in service. For 2025, the Section 179 deduction limit is $1,250,000, with a total equipment spending cap of $3,130,000. Vehicles with a gross vehicle weight rating (GVWR) exceeding 6,000 pounds often qualify for higher Section 179 limits, with a maximum deduction of $31,300 for 2025 for heavy SUVs. The vehicle must be used more than 50% for business purposes to claim Section 179.

Bonus depreciation provides an additional first-year deduction for eligible assets, including vehicles. This deduction is a fixed percentage of the asset’s cost. For vehicles placed in service in 2025, the bonus depreciation rate is 40%, decreasing to 20% in 2026 and 0% in 2027. Bonus depreciation is not subject to an annual dollar limit or a business income limitation, unlike Section 179. Businesses can claim both Section 179 and bonus depreciation, with Section 179 applied first, followed by bonus depreciation on the remaining basis.

The IRS also imposes “luxury car” rules, which limit the amount of depreciation that can be deducted annually for passenger automobiles. These limits apply to passenger cars, trucks, and vans with a GVWR of 6,000 pounds or less. For vehicles placed in service in 2025, the maximum first-year depreciation deduction, including bonus depreciation, is approximately $20,200. These limits are proportionately reduced if the vehicle is not used 100% for business.

Keeping Accurate Records

Accurate and detailed records are necessary for substantiating all vehicle expense deductions, whether using the Standard Mileage Rate or the Actual Expenses Method. The IRS requires specific documentation to support claimed deductions. This includes recording the date, destination, purpose, and mileage for each business trip. A mileage log should also include the total annual mileage, annual business mileage, and odometer readings at the beginning and end of the year.

For those opting for the Actual Expenses Method, retaining receipts for all vehicle-related costs is important. This includes receipts for gas, oil, repairs, maintenance, insurance premiums, and lease payments. Records related to the vehicle’s purchase or lease, such as invoices, registration, and title information, should also be kept. The IRS emphasizes “contemporaneous record-keeping,” meaning records should be created at or near the time of the expense or trip. This practice helps ensure the accuracy and reliability of documentation, which is important for audit purposes and to prevent disallowance of deductions. It is recommended to retain these records for at least three years from the date the tax return was filed.