Business Vehicles & Taxes: Your Frequently Asked Questions

It’s one of our most frequent questions among our clients: is a business vehicle tax deductible and how does tracking expenses work? Using a vehicle for business purposes can unlock various tax benefits for business owners and self-employed individuals if they qualify. Let’s review some of your most commonly asked questions.

Is a business vehicle tax deductible?

In short, yes, a vehicle used for business purposes can be tax deductible, but it depends on a variety of factors and requirements. The business vehicle tax deduction depends on business-related mileage, vehicle depreciation, and good recordkeeping, which we’ll explain below.

To deduct vehicle expenses for business purposes, the travel must qualify as ordinary and necessary business travel under IRS rules. Qualified business travel includes the following:

• Driving between different work locations (e.g., from your office to a client’s site or a temporary job location).

• Traveling from your office (if it’s your principal place of business) to another business location.

• Errands and supply runs for your business.

Commuting between home and a regular office does not count — it’s considered personal.

Who can deduct vehicle expenses?

Here are some examples of people who can use this deduction.

 

• Self-employed individuals: Sole proprietors, independent contractors, freelancers, and gig workers who use their personal vehicles for business purposes can deduct vehicle expenses.

• Business owners: Those operating businesses, including partnerships and corporations, can also deduct vehicle expenses related to business operations.

 

What kinds of vehicle expenses can I deduct?

Most businesses choose to deduct vehicle expenses using the standard mileage rate, but some in special circumstances choose to itemize expenses.

Standard Mileage Rate

This method can be used for all business owners that qualify. You can deduct a standard amount per mile driven for business purposes, set annually by the IRS. The rate for 2025 is 70 cents per mile.

Actual Expense Method

This method can only be used if the vehicle is used at least more than 50% for business use. Only the amount related to business travel can be deducted. For example, if the business use allocation of the vehicle is 77%, then only 77% of total vehicle expenses can be deducted as a business expense. Deductible vehicle expenses for operating a work vehicle, include the following:

 

• Gas and oil

• Repairs and maintenance

• Tires

• Car insurance

• Registration fees and licenses

• Vehicle loan interest

• Depreciation (for owned vehicles) or lease payments

• Garage rent

• Tolls and parking fees

• • Section 179 deduction (for eligible vehicles)

How should I record my expenses?

All taxpayers can claim the standard mileage rate. The actual expense method only applies if the required business use has been met. In the first year you use the vehicle for business, you must choose the standard mileage rate to be eligible to switch methods in later years. Once the actual expense method is used, you cannot switch to the standard mileage rate.

 

•  Standard Mileage Rate: This is the simpler option, but you must use it in the first year the car is available for business use.

• Actual Expenses: This may result in a potentially larger deduction due to depreciation, but it requires detailed record-keeping.

 

What if I’m using a personal vehicle for business use?

If you use your vehicle for both business and personal purposes, you can only deduct the portion of expenses related to business use.

 

• Calculate the business-use percentage by dividing the number of business miles driven by the total number of miles driven.

• Then, multiply your total vehicle expenses by the business-use percentage to determine the deductible amount.

 

What if my business is buying a new car (or vehicle)?

For those taxpayers qualifying actual expenses, your vehicle should be depreciated over time. Let’s review how depreciation works and what types of depreciation may apply.

Section 179 Deduction

• • The Section 179 deduction allows businesses to expense the cost of the vehicle up to a certain threshold. Any amount not eligible for Section 179 expensing, the remaining amount can be depreciated over the useful life of the vehicle. 
    
    
    • Passenger vehicles qualify for $12,200 first year expensing under the Section 179 deduction in 2025. 
    • Large SUVs/Trucks with a Gross Vehicle Weight Rating (GVWR) of more than 6,000 pounds but less than 14,000 qualify for $31,300 first year expensing under the Section 179 deduction in 2025

Bonus Depreciation

• Bonus depreciation allows for an additional first-year depreciation deduction.

• The 2025 rate is 100 percent for qualifying vehicles purchased and placed in service after January 19, 2025.

 

Regular Depreciation

• Standard Mileage Rate: This includes an allowance for depreciation within the rate.

• Actual Expenses: Depreciation can be deducted based on the vehicle’s cost, business-use percentage, and applicable depreciation methods (MACRS or straight-line).

Should I lease or buy a vehicle for my business?

Tax implications of leasing or buying a vehicle differ.

 

• Leasing: This results in lower monthly payments, but no ownership or equity. Leased vehicles cannot be depreciation, so your deduction is limited to your monthly lease payment.

• Buying: Purchasing a vehicle allows you to claim accelerated depreciation which means you can depreciation more of the purchase of the vehicle earlier in the ownership. While purchasing a vehicle means you could build equity, most vehicles do not hold their value over their original cost. However, it is advantageous to have a larger deduction in the first year of the vehicle purchase. 

Navigating business vehicle deductions can be complex. Consult with a tax professional to understand the rules and optimize your tax strategy. If you have questions about how this topic will impact you, Team Little Owl CPA is here to help. Schedule a discovery call today!