The Dos and Don'ts of Deducting Your Personal Vehicle for Business Use
The IRS recently announced a mid-year increase to the standard mileage rate for business use of a personal vehicle, a relatively uncommon move that reflects rising gas prices.
For 2026, taxpayers should apply a split-year mileage rate. For miles driven Jan. 1 through June 30, 2026, the rate is 72.5 cents per business mile. For miles driven July 1 through Dec. 31, 2026, taxpayers can deduct 76 cents per business mile.
A higher mileage rate means a bigger deduction for every qualifying business mile driven, but the rate itself is only part of the story. The standard mileage rate is optional, and taxpayers may instead choose to calculate and deduct actual vehicle expenses if that method produces a better result and is properly substantiated.
“If you use your personal vehicle for business purposes, understanding how vehicle-related tax deductions work can help you capture savings that might otherwise be left on the table,” says Tax Director J.J. Anderson.
TAX DEDUCTIONS FOR THE BUSINESS USE OF YOUR VEHICLE
Your vehicle must be used for business purposes to qualify for deductions.
Business purposes may include travel from one workplace to another, trips to supply stores, satellite locations, the bank or trips to business meetings away from your regular workplace. It does not include commuting from your home to your regular office.
Additionally, if you use the car for both business and personal purposes, you may only deduct the portion that is for business use.
TYPES OF DEDUCTIONS
There are two common ways to calculate a business vehicle deduction: the standard mileage rate or actual expenses.
Standard mileage rate: For 2026, use 72.5 cents per mile for qualifying business miles driven Jan. 1 through June 30 and 76 cents per mile for qualifying business miles driven July 1 through Dec. 31.
Actual expenses: If you use your vehicle for business purposes, you may deduct the business-use percentage of the cost of ownership and operation, such as insurance, gas, maintenance, repairs and depreciation, when properly substantiated. Ownership and operation generally should be paid through the business when the business is claiming the deduction.
The better method depends on the facts, including business-use percentage, total miles driven, vehicle cost, operating costs, depreciation limitations and how long you expect to keep the vehicle. Taxpayers generally cannot claim both the purchase-price/depreciation deductions and the standard mileage deduction for the same vehicle in the same year.
Depreciation
There are three methods that may apply when depreciating a business vehicle: Section 179 expensing, bonus depreciation, and MACRS depreciation. Depending on the facts and elections made, you may use one, two, or all three methods in the year the vehicle is placed in service.
- Section 179 depreciation allows businesses to immediately expense a portion of the cost of qualifying vehicles used more than 50% for business purposes, subject to annual IRS limitations and taxable income restrictions. Special limitations apply to passenger automobiles and certain SUVs.
- Bonus depreciation may be claimed after any Section 179 deduction is applied. For qualifying property acquired and placed in service after Jan. 19, 2025, current law generally allows 100% bonus depreciation. The deduction is limited to the percentage of business use.
- If there is any tax basis left over after applying Section 179 and bonus deductions, then you can qualify for MACRS depreciation. MACRS allows the capitalized cost of an asset to be recovered over a specified period via annual deductions, published by the IRS.
Depreciation Example:
Suppose you purchase a vehicle for $100,000 that weighs more than 6,000 pounds and is used 60% for business purposes in 2026. Because only the business-use portion is deductible, the maximum depreciable basis is $60,000 ($100,000 × 60%). If the vehicle qualifies for Section 179, you may deduct up to $32,000 immediately. The remaining $28,000 may qualify for 100% bonus depreciation, resulting in a total first-year deduction of $60,000. Actual deductions depend on the type of vehicle, business income, and other tax factors.
“If you want to use Section 179, not only must the vehicle be titled in the name of the business, but it really matters if the Gross Vehicle Weight Rating (GVWR) of the car is under 6,000 pounds,” says J.J. “Basically, to get the most bang for your buck, your car needs to be over 6,000 pounds.”
Benefits from depreciating your car are significantly limited if your car’s GVWR is under 6,000 pounds. GVWR is the vehicle’s weight plus the weight of passengers and cargo. You can find this number on the car door panel or do a quick internet search of the make and model.
WHAT IF?
- You lease your car: Owners can deduct some expenses if they lease it; the rules are different. Section 179 is available to all vehicle types if you drive it for more than 50% business use.
- You have a luxury car: For business vehicles, the IRS “luxury car” limits generally apply to passenger autos that are 6,000 pounds or less. Heavier SUVs/trucks over 6,000 pounds are not subject to these annual luxury caps, but have separate Section 179 limits. The annual cap amounts don’t change based on the car’s sticker price, but a higher cost vehicle will usually take longer to fully depreciate.
- You sell your car soon after you bought it: In some situations, you must “recapture” some of the depreciation you took on a vehicle if you sell it afterwards. The result is taxable income to you in the year you sell the vehicle. Ask your CWA advisor about the tax implications of this.
DON’T DO THIS
- Write off the purchase price and claim the standard mileage deduction in the same year.
- Deduct a depreciation amount more than your business’s net income for the year if you use Section 179.
- Deduct more than one vehicle on your tax return at any time.
- Assume 100% business use without adequate support. This can create audit risk.
- Fail to keep mileage records, especially for 2026 because the applicable rate depends on whether the business miles were driven before or after July 1.
Business owners can benefit from several tax-saving opportunities, but claiming the full deductions allowed without increasing audit risk can be more complex than it seems.
Our financial planners can help. Contact us for a complimentary consultation.
