Two ways to deduct a car
If you use your car for your own business, the IRS lets you pick one of two methods each year:
- The standard mileage rate. Business miles × the IRS rate: 72.5¢ a mile to June 30, 2026 and 76¢ from July 1. Gas, repairs, insurance and the car's loss in value are all built into the rate.
- Actual expenses. What the car really cost you for the year, times the share of its miles that were for business.
What actual expenses include
Gas and oil, repairs and maintenance, tires, insurance, registration and license fees, garage rent, lease payments, and depreciation if you own the car. If 70% of the car's miles this year were business, you deduct 70% of the total.
That share is business miles divided by all the miles the car drove, so you need your odometer reading at the start and end of the year as well as a log of your business drives.
What you can add with either method
- Parking fees and tolls on business drives.
- If you're self-employed, the business share of the interest on a car loan and of personal property tax on the car.
Which one is bigger?
Say the car drove 12,000 miles this year, 9,000 of them for business (75%), split evenly between the two halves of the year. With the standard rate: 4,500 × 72.5¢ + 4,500 × 76¢ = $6,682.50.
| The car cost you | Actual expenses (75%) | Better choice |
|---|---|---|
| $8,000 | $6,000 | Standard rate |
| $14,000 | $10,500 | Actual expenses |
As a rule of thumb, the standard rate wins for a reasonably cheap car you drive a lot. Actual expenses can win for an expensive car, a costly year of repairs or fewer, pricier miles. The standard rate also needs far less paperwork: a mileage log, not a year of receipts.
The rules on switching
- Owned car: pick the standard rate in the first year. Use it in the first year the car is used for business and you can switch to actual expenses later. Start with actual expenses and you can never switch to the standard rate for that car.
- Leased car: the standard rate is for the whole lease. Choose it and you keep it until the lease ends, renewals included.
- No standard rate after fast depreciation. If you've claimed a Section 179 deduction, bonus depreciation or accelerated depreciation on the car, it's actual expenses from then on.
- Not for fleets. Five or more cars used for business at the same time can't use the standard rate.
Not sure yet? Keep a mileage log and your receipts for the first year, then work out both. The mileage calculator gives you the standard-rate number in seconds.
Sources
This guide explains the IRS rules in plain English. It isn't tax advice; for your own situation, ask a tax professional.
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