Vehicle tax deductions: Writing off car expenses on taxes

Key takeaways:

• You can deduct car expenses only if you are self-employed as a contractor (freelancer or gig worker), or you are a business owner.
• You may be able to deduct all or part of the purchase price of your vehicle in the first year of business use, using the Section 179 deduction.
• If you’re a business owner, or self-employed, you can deduct your business-related car expenses using a Schedule C (Form 1040) Profit or Loss from Business.
• In most cases, you cannot write off your car payments for a vehicle you’re financing.
• One way to calculate car-related expenses is to add them all up and multiply that number by the percentage of total miles you drove for business only.
• You can write off some cost of a vehicle using depreciation, the section 179 deduction, the special depreciation allowance, or combination of these.
• The special depreciation allowance and the Section 179 deduction allow business owners or those who are self-employed, to write off an additional part of the cost of a vehicle the first year they start using their vehicle for their business.
• If your vehicle weighs less than 14,000 pounds, you could receive a maximum first-year deduction of up to $30,500 for 2024 taxes, and up to $31,300 for 2025 taxes depending on what type of vehicle is placed in business service.
• You can write off gas used for business purposes on your tax return.
• If you are traveling for business and self-employed, you can deduct the cost of tolls from your taxable income.
• Tax deductions for the business use of a vehicle can be complicated. Our Tax Pros are ready to help you get the largest benefits from your business.

Who can deduct car expenses?

For tax years 2024 and 2025, you can deduct car expenses only if you are self-employed or are a business owner, including as an independent contractor, a freelancer, or a gig-worker. The IRS updates federal tax laws constantly, so it’s a good idea to check every year.

If you use your own vehicle for both business and personal reasons, you must keep track of your car expenses and deduct only the portion used for work. If this is how you use your vehicle, your deduction for your car is based on the business percentage of mileage used for self-employment.

If you’re an employee who receives a W-2, you may not qualify for vehicle expense deductions until after 2025.

Car purchase tax deduction

You may be able to deduct all or part of the purchase price of your vehicle through depreciation or in the first year using the Special Depreciation deduction or the Section 179 deduction. The depreciation tax break lets business owners write off the cost or business portion of the cost of eligible vehicles. The deductible amount is based on the percentage you use your vehicle for business.

Book an appointment now to deduct your business-related car expenses

How do I deduct car expenses?

It depends. If you’re a business owner, or self-employed, you can deduct your business-related car expenses using on Schedule C (Form 1040) Profit or Loss from Business, along with your other business expenses. If you’re a farmer, you can use a Schedule F (Form 1040), Profit or Loss from Farming, to deduct your farming-related vehicle and other expenses. You can also use Form 4562, Depreciation and Amortization, to calculate your deduction.

Can you write off car payments on taxes?

In most cases, you cannot “write off”—or take a tax deduction—your car payments for a vehicle you’re financing. However, you can write off all or some of the interest you pay. If you’re leasing a vehicle for business purposes, you can write off all or some of your lease payments.

How do I calculate the business percentage of a car?

If you’re self-employed and use your own car for work, one way to calculate these expenses is to total all your car-related expenses, listed below, and multiply that number by the percentage of total miles you drove for business only.

Qualifying car expense deductions

• Gas
• Repairs, including new tires
• Car insurance
• Qualifying depreciation or leasing fees
• Section 179 deduction (explained below)
• Tolls
• Parking
• Maintenance fees
• Registration fees
• Garage fees
• Interest portion of car payments
• Lease payments

Example

Let's say you use your car 60% of the time for business and have $3,000 worth of eligible car expenses. Roughly, multiply $3,000 by 60%, to get $1,800 worth of deductions.

What is a “luxury car” or “automobile” for IRS purposes?

The IRS uses the term “luxury car” when referring to a passenger automobile that has four wheels, is mostly used on public roads in the U.S., and has an unloaded weight of no more than 6,000 pounds (3 tons), regardless of purchase price.  A passenger auto is also called listed property for tax rules because certain vehicles are listed for special treatment.

How do you buy a car and write some or all of it off?

It all depends on the miles driven for business. Be sure to keep records of your start-of-year mileage and end-of-year mileage and all business miles in between. You could write off all or some of your original purchase price in the first year, using depreciation, the Special Depreciation Allowance, or the Section 179 deduction or a combination of the methods. These deductions allow business owners to write off the purchase price of a car. Depreciation is a write-off over the life of the vehicle. The special depreciation allowance provides an extra percentage allowance in the year placed in business service and the section 179 deduction provides a first-year deduction.  The allowed deduction is limited to the smaller of the purchase price or the business percentage.

The special depreciation allowance for such listed property provides for a deduction up to $20,400 for a vehicle up to 6,000 lbs. and $30,500 for sport utility vehicles 6,000-14,000 lbs. in 2024.

It is not always to the taxpayer's advantage to take the special depreciation allowance or the Section 179 deduction. Claiming either creates lower taxable income, which may reduce or eliminate the taxpayer's eligibility to claim certain other tax benefits and can affect coverage for future Social Security retirement benefits.  Our Tax Pros can help determine the best alternatives for your situation.

What cars can you write off?

Business owners or those who are self-employed, may be able to write off part of the cost of their vehicle the first year using their vehicle for their business.  The property’s business-use percentage must be greater than 50% to qualify. When the taxpayer uses the property less than 100% and greater than 50% for business, multiply the cost of the property by the percentage of business use to calculate the business property cost to calculate deductions.

Also, the actual amount that can be deducted under Section 179 is limited to the taxpayer’s taxable income from the business during the year.

Depreciation covers many types of property as a deductible expense for business such as vehicles and equipment. The IRS breaks down qualifying vehicles into three categories. Basically, the heavier the vehicle, the more you can deduct.  There are light passenger vehicles (under 6,000 lbs.), passenger SUV’s (6,000-14,000 lbs.) and  non-personal use vehicles over 14,000 lbs.

• Light vehicles.This is a vehicle with the manufacturer’s gross vehicle weight rating (GVWR) listed at under 6,000 lbs. (3 tons). This includes most passenger cars, crossover SUVs, and small utility trucks.
• Heavy vehicles.This is a vehicle that weighs over 6,000 lbs., and not over 14,000 lbs. (7 tons). The deduction allowed is the percentage of business use and up to $30,500 of the purchase price.
• Other vehicles.Any vehicle that weighs over 14,000 lbs., or one that has been modified for non-personal use, such as shuttle buses (having more than 9 passengers behind the driver), delivery vans with a large interior cargo space, ambulances, and hearses. These vehicles are allowed a full Section 179 deduction, based on the purchase price and any additional expenses or improvements.

Tax write-off for a vehicle not exceeding 14,000 lbs.

If your vehicle weighs less than 14,000 lbs., you could receive a maximum first-year deduction of up to $20,400 for a light passenger vehicle (under 6,000 lbs.) and $30,500 for passenger SUVs. In the years following the year of purchase, you will follow a vehicle specific depreciation (a car’s loss of value over time and usage) schedule for deducting any remaining cost of your vehicle. The tax code further limits your deduction to the business use of your vehicle each year. Very few Schedule C small businesses have a car that is used 100% for business. If you’re splitting your car between personal and business, you must keep track of mileage for the year and for business specifically, so you can determine the business percentage.

Heavy-weight non-passenger vehicles have less restrictions for deductions due to their non-passenger work-only related character.

Taxes for business and their assets, including vehicles, can be very complicated, but your local Tax Pro can help you with this now and when you’re ready to file your taxes.

Let's write off your car

Can expensing your car for business taxes pay the car off entirely?

No, writing off a vehicle does not pay the car off, especially considering the type of financing or loan you’re committed to. However, you could write off part of the purchase price of your vehicle, starting with the first year you use it for business purposes, as a deduction on your taxes. This deduction is commonly known as “depreciation,” and may be limited based on the size (GVWR) of the car and the percentage of business use.

Can you write off gas on taxes?

Yes, if you’re self-employed or a small business owner, you can write off gas used for business purposes on your tax return. You can deduct gas in one of two ways:

• Actual expenses. Keep your receipts and detailed records of your gas purchases.
• Standard mileage rate. For 2024 the standard mileage rate is $0.67 per mile.

Are tolls tax deductible?

Yes, if you are traveling for business and self-employed, you can deduct the cost of tolls from your taxable income.

What is the Section 179 deduction limit?

The Section 179 deduction is part of the depreciation system used in income taxes. Section 179 is a way to write of part of the allowable basis (generally the purchase price) of a business asset, something owned by a business such as a car or machine in the first year. The maximum Section 179 deduction depends on the type of asset and has limitations that are annually adjusted.

What vehicles qualify for the Section 179 deduction?

New vehicles, or simply new to you, that you place in service for business during the year and used more than 50% of the time for business can be depreciated using the Section 179 deduction.

Taxes can be complicated to fully understand. That’s why we’re here! Our Tax Pros make taxes look easy, so that you can focus on getting your biggest refund while we do the hard work for you. Speak with one of our tax professionals today about deductions for your vehicle, and more tax benefits that can help you and your business expenses.

About the Author

Mark Steber is Senior Vice President and Chief Tax Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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