Business Use of Autos

Introduction

Using a vehicle for business purposes can offer valuable tax deductions—if you understand the rules. Whether you’re self-employed or driving a company-provided vehicle, it’s important to know which expenses can be claimed and how to properly document them. From choosing between the standard mileage rate and actual expenses to navigating depreciation limits and Section 179 deductions, business vehicle use involves several tax considerations. This guide outlines the IRS requirements and options available, helping you make informed decisions and maximize your deductions while staying compliant.

Note: For 2018 to 2025, the deduction for miscellaneous itemized deductions subject to the 2-percent floor, including unreimbursed employee expenses, has been suspended, and cannot be claimed on Schedule A of IRS Form 1040. If you are an employee, you will not be able to deduct your unreimbursed auto expenses.

If you use your car, truck, or other vehicle for business purposes, you can generally deduct the expenses associated with this use on your federal income tax return. This is true whether you’re self-employed or you use a vehicle provided by your employer. To calculate the deduction, you may have a choice between two methods: (1) the standard mileage rate, or (2) actual expenses.

Tip: If you have a choice, you should calculate the deduction using both methods to determine which results in the larger amount

For more information about car and truck expenses in general, see IRS Publication 463.

The standard mileage rate

Each year the IRS designates a standard mileage rate, which allows a certain deduction for each mile a vehicle is used for business purposes. For 2025, the standard mileage rate is 70 cents per business mile.

Tip: Keep a record of your business mileage to support your deduction. See IRS Publication 583 for more information about record keeping.

Requirements for using the standard mileage rate

To use the standard mileage deduction, (1) you must own or lease the vehicle (i.e. you cannot be an employee using an employer-provided vehicle) and (2) you must have used the standard mileage deduction in the first year the vehicle was placed in service. After the first year, you can use either the standard mileage rate or actual expenses. However, if you lease the vehicle, you must continue to use the standard mileage rate for the term of the lease.

You cannot use the standard mileage rate if any of the following applies:

You operate five or more vehicles (i.e., a fleet) at the same time
You claimed actual expenses for a vehicle you leased
You claimed depreciation on the vehicle using a calculation method other than straight line
You claimed a Section 179 deduction on the vehicle (discussed further below)

Tip: Starting in 2011, the standard mileage rate can be used for vehicles used for hire, such as taxicabs.

Deducting other vehicle expenses

If you use the standard mileage rate, you cannot deduct actual expenses. You cannot deduct depreciation, lease payments, gas and oil, maintenance and repairs, insurance, or registration fees. However, you may be able to deduct the following expenses:

Vehicle loan interest, reduced by any percentage of personal use
Personal property tax, regardless of personal use (available to taxpayers who itemize only)
Parking fees and tolls

Actual expenses

If you don’t qualify or simply choose not to use the standard mileage rate, you can deduct the actual costs of using your vehicle including depreciation, parking fees and tolls, tires, repairs, gas and oil, rental fees, lease fees, licensing fees, and garage rental fees. If you use your vehicle for both personal and business use, only that portion used for business is deductible.

Tip: Keep careful records of all expenses. See IRS Publication 583 for more information about record keeping.

Depreciation deduction in general

Depreciation is an allowance for wear and tear, deterioration, or obsolescence, which decreases a motor vehicle’s value. There are two possible depreciation deductions for motor vehicles

Annual depreciation
Section 179 deduction (available in the first year of service only)

Each deduction has its own restrictions and limitations. And, for certain vehicles, there is also a cap on the total standard depreciation that can be taken in a given year. See IRS Publication 946 for more information about depreciation.

Annual depreciation deduction

Because motor vehicles have useful lives extending substantially beyond the first year they are placed in service, you cannot deduct the entire purchase price, including sales tax and improvements, in the year of purchase. However, you can deduct theses costs by taking annual depreciation deductions over a number of years as long as you use your vehicle for business more than 50% of the time.

Section 179 deduction

Alternatively, you may be able to elect to take a Section 179 deduction for the vehicle, which allows you to deduct a limited amount in the year the vehicle is put into service.

Total standard depreciation cap

Annual depreciation and Section 179 deductions are limited to certain maximums according to the type of vehicle. The maximum total depreciation deductions that can normally be claimed for vehicles placed in service during 2025 are as follows:

Autos: $12,200 for the first year the car is in service, $19,600 for the second year, $11,800 for the third year, and $7,060 for each succeeding year
Trucks and vans: Dollar limits are the same as for autos in 2024.

Tip: The Small Business Jobs Act of 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the American Taxpayer Relief Act of 2012, the Taxpayer Increase Prevention Act of 2014, and the Protecting Americans from Tax Hikes Act of 2015 extended the first-year 50-percent additional depreciation to property acquired in 2010 to 2017. The Tax Cuts and Jobs Act provides for 100-percent additional depreciation for property placed in service after September 27, 2017 and before 2023 (reduced by 20% in each year from 2023 to 2026), increasing the first-year auto limit by $8,000 in 2025. As a result, the first-year depreciation limit for 2025 is $20,200 for autos and trucks and vans. For autos, trucks, and vans acquired before September 28, 2017 and placed in service during 2019, the first-year auto limit is increased by $4,800 to $14,900. For autos, trucks, and vans acquired before September 28, 2017 and placed in service after 2019, there is no special allowance for additional first-year depreciation. Note that special 100% first-year bonus depreciation rules applied to qualifying property placed in service after September 8, 2010, and before January 1, 2012. Special rules apply to the calculation of allowable depreciation in subsequent years — consult IRS Publication 463.

Caution: These maximums are reduced if the vehicle is used less than 100% for business, or less than a full year.

The types of vehicles subject to the limitations described above are:

Passenger automobiles weighing 6,000 pounds or less
Trucks, vans (including minivans), and SUVs weighing 6,000 pounds or less unless the vehicle is exempt

Vehicles that are exempt from the limitations described above are:

Trucks, vans (including minivans), and SUVs weighing more than 6,000 pounds
Trucks, vans (including minivans), and SUVs weighing 6,000 pounds or less that have been modified to meet the description of a “qualified non-personal use vehicle.”

Caution: Certain exempt vehicles placed into service on or after October 23, 2004 are subject to a $31,300 (in 2025) Section 179 deduction limit.

See IRS Publication 463 for more information about the total standard depreciation cap.

Employer reimbursements

You cannot deduct the cost of using your vehicle for business purposes if your employer reimburses you for these expenses. You do not have to report the reimbursement allowance or the expenses on your tax return, and your employer will not report the reimbursement as income on your W-2 form as long as you provide a record to your employer showing the time, place, and business purpose of the vehicle expense being reimbursed.

Tip: If you’re reimbursed at a rate below the standard mileage rate, the difference may be deducted on Schedule A. If you’re reimbursed at a rate above the standard mileage rate, the difference is treated as taxable wages to you.

Note: For 2018 to 2025, the deduction for miscellaneous itemized deductions subject to the 2-percent floor, including unreimbursed employee expenses, has been suspended, and cannot be claimed on Schedule A. If you are an employee, you will not be able to deduct your unreimbursed auto expenses.

Conclusion

Deducting vehicle expenses for business use can reduce your tax burden, but only if you follow IRS guidelines and keep detailed records. Choosing the right method—standard mileage rate or actual expenses—depends on your specific situation, and may require some year-to-year calculation. If you’re eligible, additional deductions like depreciation and Section 179 can offer further savings. However, for employees, unreimbursed vehicle expenses remain non-deductible through 2025. As always, working with a tax advisor can help you navigate the rules and determine the most advantageous approach for your business or self-employment situation.

Scarlet Oak Financial Services can be reached at 800.871.1219 or contact us here. Click here to sign up for our weekly newsletter with the latest economic news.

Source:

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Scarlet Oak Financial Services.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Scarlet Oak Financial Services provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.