Can I Deduct Vehicle Expenses?

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If you use your vehicle for business purposes, you may be able to deduct vehicle-related expenses on your taxes. For self-employed individuals and small business owners, vehicle deductions can result in significant tax savings. The IRS offers two methods for calculating vehicle deductions: the standard mileage rate and the actual expense method. Understanding both options and choosing the right one for your situation can maximize your deduction while ensuring you meet IRS requirements.

Who Can Deduct Vehicle Expenses?

Self-employed individuals, freelancers, independent contractors, and small business owners can deduct vehicle expenses for business use. This includes sole proprietors, partnerships, LLCs, S corporations, and C corporations.

W-2 employees cannot deduct vehicle expenses on their federal tax returns, even if they drive for work purposes. The Tax Cuts and Jobs Act eliminated unreimbursed employee expense deductions for tax years 2018 through 2025. However, certain workers like armed forces reservists, qualifying performing artists, and fee-basis government officials may still qualify for limited vehicle deductions.

To claim vehicle deductions, you must use your car, truck, van, or SUV for legitimate business purposes. Personal commuting from home to your regular workplace is never deductible, but business travel between job sites, client locations, or business errands qualifies.

The Two Methods for Deducting Vehicle Expenses

You can choose between two IRS-approved methods for calculating your vehicle deduction:

The Standard Mileage Rate Method allows you to deduct a set amount per business mile driven. For 2025, the standard mileage rate is 70 cents per mile. If you drive 10,000 business miles during the year, your deduction would be $7,000. This method is simpler because you only need to track mileage, not individual vehicle expenses.

The Actual Expense Method allows you to deduct the actual costs of operating your vehicle for business purposes. This includes gas, oil, repairs, tires, insurance, registration fees, lease payments, and depreciation. You must track all vehicle expenses throughout the year and deduct the business-use percentage of total costs.

You must choose your method in the first year you use a vehicle for business. For owned vehicles, you can switch between methods in future years, but once you use actual expenses for a leased vehicle, you must continue using that method for the entire lease period.

Standard Mileage Rate: How It Works

The standard mileage rate is the simplest method and works well for many taxpayers. Here’s what you need to know:

Track your business mileage using a mileage log, GPS tracking app, or other reliable record-keeping system. Record the date, starting and ending locations, purpose of the trip, and miles driven for each business trip.

Multiply your total business miles by the standard rate. For 2025, the rate is 70 cents per mile. The IRS updates this rate annually, so verify the current year’s rate when calculating your deduction.

Additional deductible costs beyond the mileage rate include business-related parking fees and tolls. These can be deducted separately even when using the standard mileage rate.

What the standard rate covers: The IRS’s per-mile rate is designed to cover gas, oil, repairs, tires, insurance, registration, lease payments, and depreciation. You cannot deduct these expenses separately when using the standard mileage rate.

What the standard rate doesn’t cover: Interest on a car loan, personal property tax on the vehicle, and business parking/tolls are deductible separately, even when using the standard mileage method.

Actual Expense Method: How It Works

The actual expense method requires more record-keeping but may provide a larger deduction, especially if you have high vehicle costs or drive an expensive vehicle. Here’s how to use this method:

Track all vehicle-related expenses throughout the year, including gas, oil changes, repairs, maintenance, tires, insurance premiums, registration and license fees, lease payments or loan interest, car washes, and parking.

Calculate depreciation if you own the vehicle. Depreciation is the largest component of actual expenses for owned vehicles. You can use standard depreciation tables or take advantage of bonus depreciation and Section 179 expensing in some cases.

Determine your business-use percentage by dividing business miles by total miles driven. If you drive 15,000 business miles and 25,000 total miles, your business use is 60%.

Apply your business-use percentage to your total vehicle expenses. If you spent $12,000 on vehicle costs and your business use is 60%, your deduction is $7,200.

Keep receipts, invoices, and documentation for all vehicle expenses throughout the year. Credit card statements alone aren’t sufficient—you need detailed receipts showing what was purchased.

Which Method Gives You a Bigger Deduction?

The answer depends on your specific situation:

The standard mileage rate typically benefits:

∙ Drivers of fuel-efficient or lower-cost vehicles

∙ Those who drive many business miles but have low actual vehicle costs

∙ People who want simple record-keeping

∙ New business owners who don’t want to track every receipt

The actual expense method typically benefits:

∙ Drivers of expensive, luxury, or electric vehicles

∙ Those with high repair or maintenance costs

∙ Vehicles with high insurance premiums

∙ Business owners who drive fewer miles but have significant vehicle costs

Calculate your deduction both ways in your first year to see which is more beneficial, then choose accordingly. You can recalculate annually (for owned vehicles) and switch methods if your situation changes.

What Counts as Business Mileage?

Business mileage includes driving for legitimate business purposes:

Traveling between job sites or work locations qualifies as business mileage. If you’re a contractor working at multiple properties, driving between sites is deductible.

Visiting clients or customers for meetings, service calls, deliveries, or consultations generates deductible business miles.

Running business errands such as going to the bank for business banking, picking up supplies, or visiting the post office for business mail qualifies.

Driving to temporary work locations is deductible. If you work at various locations for short periods, travel to these sites qualifies as business mileage.

Attending business meetings, conferences, or educational events related to your business creates deductible mileage.

What doesn’t count: Commuting from home to your regular workplace is personal, not business, mileage. However, if your home office is your principal place of business, driving from home to client locations or other business destinations is fully deductible.

Special Rules for Multiple Vehicles

If you use more than one vehicle for business, you must choose the same method for all vehicles in the first year. You cannot use standard mileage for one car and actual expenses for another.

For subsequent years with owned vehicles, you can use different methods for different vehicles as long as you established eligibility in the first year of each vehicle’s business use.

Leased Vehicles

If you lease a vehicle and want to deduct expenses, you must use the actual expense method for the entire lease period. You cannot switch to standard mileage mid-lease.

Lease payments are deductible based on your business-use percentage. If you use a leased vehicle 80% for business and your monthly lease payment is $500, you can deduct $400 per month ($500 × 80%).

Section 179 and Bonus Depreciation for Vehicles

Heavy vehicles over 6,000 pounds gross vehicle weight may qualify for enhanced depreciation deductions under Section 179 or bonus depreciation rules. This includes many SUVs, pickups, and vans.

Passenger vehicles under 6,000 pounds face annual depreciation limits, currently around $12,000 to $20,000 per year depending on the year. These limits restrict how much you can deduct even if the vehicle costs significantly more.

If you purchase a qualifying heavy vehicle for business use, you may be able to deduct a substantial portion or all of the cost in the first year, creating significant tax savings. Consult with a tax professional about vehicle weight classifications and depreciation strategies.

Documentation Requirements

Proper documentation is critical for vehicle deductions because the IRS frequently scrutinizes these claims:

Mileage logs must include the date, starting location, ending location, business purpose, and miles driven for each trip. Use a physical logbook, spreadsheet, or GPS mileage tracking app.

Receipts for all actual expenses if using the actual expense method, including gas receipts, repair invoices, insurance statements, and registration documents.

Records showing total annual mileage from odometer readings at the beginning and end of each year.

Business-use percentage calculation with supporting documentation.

Many taxpayers use smartphone apps like MileIQ, Everlance, or QuickBooks Self-Employed to automatically track mileage and simplify record-keeping.

Common Mistakes to Avoid

Don’t claim 100% business use unless you truly never use the vehicle for personal purposes. The IRS expects some personal use, and claiming an unrealistic percentage invites audit risk.

Don’t deduct commuting miles from home to your regular workplace. Only self-employed individuals with qualifying home offices can deduct all miles from home.

Don’t switch methods without understanding the rules. Once you use actual expenses on a leased vehicle, you’re locked in for the lease term. For owned vehicles, switching methods mid-year is not allowed—you must wait until the following tax year.

Make sure to track mileage contemporaneously, not months later from memory. The IRS requires timely, accurate records, and reconstructing a mileage log after the fact is problematic.

Bottom Line

Vehicle expenses are deductible for self-employed individuals and business owners who use their vehicles for legitimate business purposes. Choose between the standard mileage rate (simpler) or actual expense method (potentially larger deduction) based on your situation. Track all business mileage meticulously using a log or app, maintain receipts for actual expenses if using that method, and calculate your business-use percentage honestly. For guidance on maximizing your vehicle deduction and choosing the best method, consult with a qualified tax professional.