Vehicles – The Road to Tax Deductions

When using a vehicle for business purposes, understanding the tax implications and deduction options is crucial. Whether the vehicle is personally owned or owned by the business, the IRS provides guidelines for deducting expenses, including mileage reimbursement and actual costs. However, vehicle tax rules are complex and frequently updated, making proper documentation essential. This article outlines key considerations for deducting business vehicle expenses, covering reimbursement methods, depreciation rules, and special provisions for SUVs and larger trucks.

The Bottom Line  

The business use of a vehicle owned personally or by a business entity is deductible. 

Business mileage should be documented.  

Take Note! 

These are general guidelines. Vehicle rules are complicated and change frequently.   

Personally Owned Vehicle 

The business pays a deductible reimbursement to the individual for business use of the vehicle, based on IRS mileage rate or actual expenses (67 cents/mile in 2024).  The reimbursement is tax-free to the individual.  

Business Owned Vehicle 

The business deducts the actual vehicle expenses and assigns taxable income for the personal use portion. 

Two Deduction Options 

The mileage method uses a cents/per mile rate designated by the IRS each year. It covers all vehicle cost and expenses except parking, tolls and loan interest.  The rate is 70 cents per mile for 2025. 

The actual expense method allows deduction of vehicle purchase cost (taken under allowable depreciation rules), lease payments, operating expenses, repairs, insurance, interest, registration, parking and tolls are allowable expenses.   

Depreciation 

Vehicle price can be deducted over 5 years, with options for straight-line or accelerated methods (maximum year one limit of $20,200 for passenger vehicles placed in service in 2025). 

Sport utility vehicles (SUV’s) over 6,000 pounds and under 14,000 pound gross vehicle weight rating may be deducted up to 40% in 2025 under Bonus Depreciation rules (assuming 100% business use).  Another option is Section 179, allowing a 2025 maximum $31,300 first year deduction and 5-year depreciation on the balance of cost.  Business use must be over 50% for Section 179 treatment.  After applying Sec 179, bonus depreciation can be used on the same asset. 

SUV’s do not include large trucks that have an open cargo area of at least six feet in interior length or a capped cargo area of that length that is designed for use as an open area and is not readily accessible directly from the passenger compartment.  These larger vehicles can be deducted 40% under 2025 bonus rules or 100% under Section 179 rules. 

If you need guidance on navigating business vehicle tax deductions and compliance, our team is here to help. Contact us for expert advice on reimbursement methods, depreciation rules, and maximizing your deductions while staying IRS-compliant.