If you use your car in your job or business and you use it only for that purpose, you may deduct its entire cost of operation (subject to limits discussed later). However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use. You can generally figure the amount of your deductible car expense using one of two methods: the standard mileage rate method or the actual expense method. If you qualify to use both methods, before choosing a method, you may want to figure your deduction both ways to see which gives you a larger deduction.
Please refer to Publication 463, Travel, Entertainment, Gift and Car Expenses, for the current standard mileage rate.
If you use the standard mileage rate, you can add to your deduction any parking fees and tolls incurred for business purposes. To use the standard mileage rate:
- You must own or lease the car;
- The car must not be used to transport persons or property for compensation or hire, for example as a taxi;
- You must not operate five or more cars at the same time, as in a fleet operation;
- You must not have claimed a depreciation deduction using the Modified Accelerated Cost Recovery System (MACRS) on the car in an earlier year.
To use the actual expense method, you must determine what it actually costs to operate the car for the portion of the overall use of the car that is business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles.
Other car expenses for parking fees and tolls attributable to business use are separately deductible, whether you use the standard mileage rate or actual expenses.
Generally, the Modified Accelerated Cost Recovery System is the only depreciation method that can be used by car owners to depreciate any car placed in service after 1986. However, if you used the standard mileage rate in the year you place the car in service, and change to the actual expense method in a later year and before your car is fully depreciated, you must use straight-line depreciation over the estimated remaining useful life of the car. There are limits on how much depreciation you can deduct. For additional information on the depreciation limits, please refer to Topic 704.
IRS Hispanic Media Relations
All East Coast states and Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Montana, Nebraska, North Dakota, Ohio, Oregon, South Dakota, Washington, Wisconsin, Wyoming.
230 S. Dearborn St. MS 1020CHI
Chicago, IL 60604
Office: (312) 566-3530
Cell: (312) 953-3050
Fax: (312) 566-3526