IRS Publication 463, Actual Car Expenses

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

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

Actual car expenses include:

Depreciation
Licenses
Gas
Oil
Lease Payments
Insurance
Garage rent
Tolls
Registration Fees
Repairs
Tires
Parking Fees

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, as explained later in chapter 5.

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 your expense 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 รท 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. See Vehicle Provided by Your Employer in chapter 6.

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 sales taxes, even if you use your car 100% for business. Sales taxes are part of your car's basis and are recovered through depreciation. See Special Depreciation Allowance and Depreciation Deduction.

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, for information on deducting a loss on your car.

Depreciation and section 179 deductions. Generally, the cost of a car, plus sales 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 through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), the special depreciation allowance, and depreciation deductions. Depreciation allows you to recover the cost over more than one year by deducting part of it each year.

Generally, there are limits on 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, the special depreciation allowance, 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 section 179 deduction, the special depreciation allowance, or depreciation using a method other than straight line for its estimated useful life 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 usually 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.

  3. A truck or van that is a qualified nonpersonal use vehicle.

Trucks and vans. For purposes of depreciation, the term "trucks and vans" refers to passenger automobiles that are built on a truck chassis, including minivans and sport utility vehicles (SUVs) that are built on a truck chassis.

Electric car. For purposes of depreciation, the term "electric car" refers to passenger automobiles designed to be propelled primarily by electricity and built by an original equipment manufacturer.

More information. See Special Depreciation Allowance for more information on how to depreciate your vehicle.

Qualified nonpersonal use vehicles. These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name.

 

Information courtesy of the Internal Revenue Service.