Personal Vehicle Tax Deductions

In general, if you use vehicles in pursuit of a trade or business, you are allowed to deduct the ordinary and necessary expenses incurred while operating the vehicle. However, any expenses associated with the personal use of the vehicle are not deductible. For purposes of these deductions, “car” includes a passenger vehicle, van, pickup or panel truck.

Personal vs. business miles. Business use of your car can include traveling from one work location to another work location within your tax home area; visiting customers; attending a business meeting away from the regular workplace; and traveling from home to a temporary workplace if you have one or more regular places of work. The costs of commuting from home and a regular place of work, however, are nondeductible commuting expenses.

Standard mileage rate vs. actual cost method. In lieu of proving the actual costs of operating an automobile, self – employed individuals may compute the deductible costs for their business use of an auto using a standard mileage rate. The standard mileage rate may also be used to reimburse employees who use their own car for business. The 2018 standard mileage rate is 54.5 cents per mile. That mileage rate increases in 2019. You may not depreciate your car or deduct lease payments if you use the standard mileage rate method. If you use the actual cost method, you may take deductions for depreciation, lease payments, registration fees, licenses, gas, insurance, oil, repairs, garage rent, tolls, tires and parking fees. Regardless of the method used, if the vehicle is driven for personal as well as business purposes, only expenses or mileage attributable to the percentage of business use are deductible. There are separate considerations involved in leasing a car for business.

Substantiation. Proper recordkeeping is critical. The recordkeeping requirements vary depending upon which method you use. If you use the standard mileage rate, you should keep a daily log showing the miles traveled, destination and business purpose. Recordkeeping under the actual cost method is somewhat more onerous. You should also keep a mileage log if you use the actual cost method in order to establish business use percentage. In addition, you must keep receipts, invoices and other documentation to verify expenses. Finally, you must be able to prove the original cost of the vehicle and the date it was placed in service for business use in order to claim depreciation.

If you are an employee, or a self – employed individual, you should work with your tax professional to evaluate the business use of your vehicle(s) in order gain guidance in claiming and substantiating these expenses. Also keep in mind, that this article does not cover company vehicles as a fringe benefit, that’s a separate discussion.