How to Write Off Your Car as a Business Expense

Using a personal vehicle for business activities can lead to significant tax deductions, helping individuals and small businesses reduce their taxable income. Understanding the rules and regulations is important for correctly claiming these write-offs. Choosing the right deduction method requires considering what qualifies as business use and which method aligns best with your costs. This ensures compliance and maximizes financial benefits.

Defining Deductible Vehicle Use

Not all driving qualifies for a tax deduction. The Internal Revenue Service (IRS) differentiates between deductible business use and non-deductible personal use or commuting. Business mileage includes travel between different workplaces, client visits, business-related errands, or driving from a home office to another work location if the home office is the primary place of business. This travel is a necessary expense for conducting business operations.

Regular commuting from home to a primary workplace is not deductible, as the IRS views this as a personal expense. Even if you occasionally work at a different location, travel between your home and a regular workplace remains non-deductible. The distinction is whether the travel is an ordinary and necessary part of your business operations beyond simply getting to your main job site.

Choosing Your Deduction Method

Businesses can choose between two methods for deducting vehicle expenses: the Standard Mileage Rate or the Actual Expenses Method. The appropriate method depends on your vehicle use and costs. Both methods require diligent record-keeping.

The Standard Mileage Rate offers a simplified approach, allowing taxpayers to deduct a set amount for each business mile driven. This rate, determined annually by the IRS, covers vehicle operating costs, including depreciation, gas, oil, repairs, insurance, and registration fees. For 2025, the business standard mileage rate is 70 cents per mile, increasing from 67 cents per mile in 2024. Taxpayers can also deduct business-related tolls and parking fees. This method has limitations: it cannot be used if you previously claimed a Section 179 deduction or special depreciation for the same vehicle, or if you operate a fleet of five or more vehicles. If you choose the standard mileage rate in the first year a vehicle is placed in service for business, you cannot switch to the actual expense method for that vehicle in later years if it is leased.

The Actual Expenses Method involves tracking and deducting all itemized costs associated with operating the vehicle for business purposes. This approach allows for the deduction of expenses, including:

• Gas and oil purchases
• Tires
• Maintenance and repairs
• Insurance premiums
• Registration fees
• Lease payments

If the vehicle is owned, interest paid on a car loan can also be deducted. This method also permits the deduction of garage rent, tolls, and parking fees.

Only the percentage of expenses directly attributable to business use can be deducted. For example, if a vehicle is used 70% for business and 30% for personal use, only 70% of the total actual expenses are deductible. This method requires more detailed record-keeping compared to the standard mileage rate.

Understanding Specific Vehicle Deduction Rules

Beyond the choice of deduction method, specific rules govern how certain vehicle costs are treated for tax purposes, particularly under the Actual Expenses Method. These rules impact the total deductible amount, especially for vehicle purchases. The Modified Accelerated Cost Recovery System (MACRS) is the general depreciation system for most business property, including vehicles. This system allows for the recovery of property cost over a specified period.

The Section 179 deduction provides an immediate expensing option for qualifying business vehicles. This allows businesses to deduct the full purchase price of eligible vehicles in the year they are placed in service, rather than depreciating them over several years. For 2025, the maximum Section 179 deduction is $1,250,000, with a total equipment spending cap of $3,130,000, at which point the deduction begins to phase out. Vehicles weighing over 6,000 pounds Gross Vehicle Weight Rating (GVWR) have a specific Section 179 deduction limit of $31,300 for 2025. To qualify, the vehicle must be used more than 50% for business purposes. Both new and used vehicles can be eligible, provided they are “new to you” and meet other criteria.

Bonus depreciation offers an additional first-year depreciation allowance for eligible business vehicles. This deduction is not subject to an annual dollar limit or limited by annual business profit, though business use percentage dictates the maximum claimable amount. For assets placed in service in 2025, the bonus depreciation rate is 40%, a reduction from 60% in 2024, continuing a phase-out. Bonus depreciation can be combined with Section 179, and for some vehicles, it can increase the first-year deduction by an additional $8,000. Property must be eligible for MACRS depreciation to qualify.

The IRS imposes “luxury vehicle limitations” on depreciation deductions for passenger automobiles, regardless of whether they are commonly considered luxury vehicles. These limits restrict the maximum amount that can be deducted each year for depreciation. For example, for passenger vehicles placed in service in 2024, the first-year depreciation limit is $12,400 without bonus depreciation, or $20,400 with bonus depreciation. These limits apply to vehicles with a GVWR of 6,000 pounds or less.

The tax implications for purchased versus leased vehicles differ. When a vehicle is purchased, businesses can deduct depreciation and interest paid on the car loan. For leased vehicles, the business percentage of lease payments is deductible.

Maintaining Accurate Records

Maintaining accurate and detailed records is important for substantiating vehicle expense deductions, regardless of the method chosen. The IRS requires thorough documentation to support any claims, as outlined in IRS Publication 463. Proper record-keeping is necessary for audit readiness and to prevent disallowance of deductions.

For those using the standard mileage rate, specific information must be recorded for each business trip. This includes the date, destination, business purpose, and total miles driven. Recording starting and ending odometer readings at the beginning and end of each year is necessary. The IRS emphasizes that these records should be kept contemporaneously, meaning at or near the time of travel.

If the Actual Expenses Method is used, detailed receipts and documentation for all related costs are required. This includes records for:

• Gas and oil purchases
• Maintenance and repairs
• Tire replacements
• Insurance premiums
• Registration fees
• Interest statements for car loans
• Lease agreements

These documents serve as proof of expenses incurred and the business percentage of use.

Practical record-keeping methods include maintaining a physical mileage logbook, using mobile applications that track mileage via GPS, or employing spreadsheets for expense tracking. Digital scanning of receipts and cloud-based storage solutions provide a secure and organized way to retain documentation. Records should be kept for at least three years from the date a tax return is filed, though retaining them for up to seven years can cover potential extended audit periods.