How To Write Off a Car for Business
Being your own boss may be the American dream, but taking that leap can be costly. To help offset your expenses, you might be able to claim your business vehicle as a deduction.
Learning how to write off a car for business can be challenging if you aren’t a tax guru. We break down what you need to know here.
- You need to be a business owner or self-employed to write off a car for business, though there are rare exceptions.
- There are two ways to write your car off for business. The standard mileage rate will let you earn money back for every eligible business mile you drive. If you use the actual expense method, you’ll claim your business car’s operating expenses instead of business miles.
- If you’re buying a car for business, you may be able to claim some or all of its purchase price under Section 179 of the tax code. You must use it more than 50% of the time for business purposes to qualify.
- Tax rules change from year to year, so talk to a tax professional to determine the best options for your financial situation.
Who can write off a car for business?
Tax laws are constantly changing, but as of this writing, only business owners and self-employed contractors are typically eligible to write off a car for business.
You generally can’t write off a car for business if you are a W-2 employee. Exceptions exist for performance artists, military reservists and fee-based government workers.
How to write off a car for business: 2 methods
There are two ways you can write off a car for business: the standard mileage rate or the annual expense method.
1. Standard mileage rate
- You get good gas mileage and put a lot of business miles on your car each year.
- Your business vehicle has a low cost of ownership.
- You haven’t claimed a Section 179 deduction on the car purchase.
- You want the simplest write-off.
The easiest way to write off a car for business is to use the standard mileage rate method.
Standard mileage rate allows you to deduct 67 cents per business mile you drove in tax year 2024 (70 cents in tax year 2025). If you drive for business and personal reasons, you can only write off your business miles. But there is no cap on the number of miles you can deduct.
The IRS has strict rules as to what counts as business miles.
| Travel that qualifies for a car write-off | Travel that does not qualify for a car write-off |
|---|---|
Miles driven to meet clients Business-related errands like going to the bank or post office Driving to offsite business meetings Traveling from your main office to another office location Rideshare miles (either to pick up passengers or while a passenger is in your car) | Work-related miles you drive as a W-2 employee (in most cases) Miles commuting to and from your regular workplace Personal errands, appointments or events |
Along with your annual mileage, you can claim:
Auto loan interest: You may be able to write off the interest you pay on your auto loan. How much you can claim depends on how much you use your vehicle for business. For instance, if you use your car for business 40% of the time, you can claim 40% of the interest you paid on your car loan.
Personal property taxes: You can claim the business portion of your car’s state and local personal property tax (see example above).
Tolls and parking fees: It’s possible to deduct tolls and parking fees you paid while you drove for business. Paying to park at your regular workplace doesn’t count.
2. Actual expense method
- You have a lot of car-related expenses or a hefty gas or auto insurance bill.
- You own and operate five or more cars for business.
- You don’t mind calculating all your car expenses over the year and saving all your car-related receipts.
Alternatively, you could use the actual expense method to write off a car for business. With this, you’ll claim your car’s operating expenses rather than the business miles you drive. These expenses include:
- Auto loan interest
- Personal property taxes
- Tolls and parking fees
- Car depreciation
- Gas and oil
- Lease payments
- Car insurance premiums
- Car repairs and maintenance
- Registration fees
Unless you drive 100% for business reasons, you can only deduct a portion of your expenses. The amount you can deduct depends how many business miles you drive compared to personal miles.
Choosing between standard mileage rate and actual expenses method
You can get an idea of whether the standard mileage rate or actual expenses method will net you a bigger deduction with some simple math.
Imagine you drove 12,000 total miles in tax year 2024, and 10,000 of those were for business. You also spent $4,000 on eligible car-related expenses like car insurance and gas.
In this scenario, you’d come out ahead by using the standard mileage rate. Here’s how it would shake out.
Standard mileage rate
To calculate standard mileage rate, simply multiply the number of business miles you drove by .67 (or, 67 cents). Standard mileage rate in this example could net a potential deduction of $6,700. That’s because 10,000 x .67 = 6,700.
Actual expense method
The actual expense method is more complicated. First, add up what you spent on eligible car expenses during the tax year. Then, calculate your business use percentage, or how many miles you drove for business reasons versus personal. This will represent the portion of your car expenses you may be able to write off.
If you drove 12,000 miles a year in total with 10,000 of those for business, you could claim 83% of your car-related expenses. The formula here is 10,000 / 12,000 = 0.83, or 83%.
Since you spent $4,000 on car-related expenses in this example, you’d have a potential deduction of $3,320 (or 83% of $4,000).
The deduction method you choose on your first tax return is super important.
Consider using the standard mileage rate in the first year if you aren’t sure that the annual expense method will always work in your favor. That’s because if you start with the annual expense method, you’re locked into it for as long as you write off your car.
When you lease a car for business, it’s backwards. If you use standard mileage rate in your first year, you are stuck with it for the entirety of your lease contract.
Does buying a car help with taxes?
Buying a car can help with tax deductions. Even if you only use your car for personal use, you can deduct the car’s sales tax as long as you itemize (unless you took a deduction for your state and local income tax).
Business owners and independent contractors may also qualify for the Section 179 deduction, but only if they use the actual expense method. Section 179 lets you write off part of your vehicle’s purchase price. How much you can claim depends on how much the vehicle weighs.
You could also qualify for a separate bonus depreciation deduction. This allows you to write off even more if Section 179 doesn’t cover the full cost of your vehicle.
To qualify, you must use your car for business more than 50% of the time. For more information, please see the IRS’s guidelines regarding Section 179.
Frequently asked questions
You may be able to write off 100% of your vehicle for business, but only if you use the vehicle 100% of the time for business purposes. For instance, if you only use the car 60% for business, then only 60% of your business car expenses would be tax deductible.
You must also “itemize” with the annual expense method if you want to write off 100% of your business car expenses. If you use the alternative, which is the standard mileage rate, you can claim 67 cents per business mile you drive in tax year 2024 (70 cents in 2025).
If you are a business owner or self-employed contractor, you may be able to write off your lease payment as long as you use the actual expense method when filing your taxes.
Also, you can only claim the business-related portion of your lease payments. In other words, you must calculate what percentage of your total annual miles you drove for business. This is the percentage of your lease payment that you can claim.
Business owners or independent contractors who use the actual expense method can write off their car insurance. How much of you can claim depends on how much you drove the car for business. Say you only drove 60% for business purposes. In that case, you can claim 60% of your business car-related expenses (including your insurance).
It’s possible to take a tax deduction for the sales tax on a new car, regardless of whether you use it for work, but you need to itemize your deductions at tax return time.
It’s also possible to write off the purchase of a new car used solely for business purposes using the Section 179 deduction.
There’s also the electric vehicle (EV) tax credit that can offset the purchase of an eligible new EV for personal use.
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