Deduction of Actual Vehicle Expenses

If you do not choose to use the standard mileage rate, you may be able to deduct your actual car expenses.

If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction.

Actual car expenses include the costs of:

If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Continue to keep records.

Business and personal use. If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. You can divide based on the miles driven for each purpose.

Example. You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense.

Employer-provided vehicle. If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. You cannot use the standard mileage rate.

Interest on car loans. If you are an employee, you cannot deduct any interest paid on a car loan. This interest is treated as personal interest and is not deductible. If you are self-employed and use your car in that business, see Interest, earlier, under Standard Mileage Rate.

Taxes paid on your car. If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. Enter the amount paid on line 7 of Schedule A (Form 1040).

You cannot deduct luxury or sales taxes, even if you use your car 100% for business. Luxury and sales taxes are part of your car's basis and may be recovered through depreciation. See Depreciation Deduction, later.

Fines and collateral. You cannot deduct fines and collateral you pay for traffic violations.

Casualty and theft losses. If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss that is not covered by insurance. See Publication 547, Casualties, Disasters, and Thefts (Business and Nonbusiness), for information on deducting a loss on your car.

Depreciation. Generally, the cost of a car, plus sales tax, luxury tax, and improvements, is a capital expense. Because the benefits last longer than one year, you generally cannot deduct a capital expense. However, you can recover this cost by claiming a section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code) and/or a depreciation deduction. By using depreciation, you recover the cost over more than one year by deducting part of it each year. The section 179 deduction and the depreciation deduction are discussed later.

Generally, there are limits on both of these deductions. Special rules apply if you use your car 50% or less in your work or business.

You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. If you claim either a depreciation deduction or a section 179 deduction in the year you first place a car in service, you cannot use the standard mileage rate on that car in any future year.

Car defined. For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) that is made primarily for use on public streets, roads, and highways. Its unloaded gross vehicle weight (gross vehicle weight in the case of a truck or van) must not be more than 6,000 pounds. A car includes any part, component, or other item that is physically attached to it or is traditionally included in the purchase price.

A car does not include:

1.      An ambulance, hearse, or combination ambulance-hearse used directly in a business, or

2.      A vehicle used directly in the business of transporting persons or property for pay or hire.

See Publication 946 for more information on how to depreciate your vehicle.

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