Two Ways to Deduct Your Car (And the Doors That Close Behind You)
Every business owner with a vehicle asks the same question. How much of this can I write off?
The answer is two methods. Actual expenses or standard mileage. Most people pick one on a whim, never revisit it, and never find out what they gave up.
So let's go through it properly. What the two methods are, how your entity changes the game, why the door locks behind you, and the part almost nobody thinks about until they sell the car.
Method One: Actual Expenses
You track what the car actually costs you and deduct the business portion.
The usual suspects:
Gas
Insurance
Repairs and maintenance
Tires
Registration and license fees
Lease payments
Loan interest (business portion)
Washes and detailing
Parking and tolls
Depreciation
Then you apply your business use percentage. Drive 12,000 miles and 9,000 of them are business, that's 75%. Your $8,000 of costs becomes a $6,000 deduction.
Notice you still need a mileage log to get that percentage. People assume actual means no log. It doesn't. You need the miles either way.
Where Actual Gets Interesting
Depreciation is the biggest number on that list, and it's the reason people choose actual in the first place.
Bonus depreciation is back at 100%. And if your vehicle has a gross vehicle weight rating over 6,000 pounds, it steps outside the luxury auto limits that cap the deduction on a normal car. Which means you can generally write off the entire business portion in year one.
For example, let's say you buy a $90,000 SUV over 6,000 pounds and use it 80% for business. That's a $72,000 deduction in the year you place it in service. At a 37% effective rate, that's roughly $26,000 of tax back in your pocket.
That's real money, and it's why the 6,000 pound rule gets talked about at every entrepreneur dinner in America.
But don't let the tail wag the dog. You're spending 90 grand to save 26. Buy the truck because the business needs the truck. The deduction is a discount, not a reason.
Method Two: Standard Mileage
You skip the receipts. Multiply business miles by the IRS rate and that's your deduction. The rate already bakes in gas, insurance, repairs, and depreciation.
Simple, clean, and much harder to lose in an audit because there's only one number to defend.
The 2026 Wrinkle
Normally there's one rate for the year. Not this year.
The IRS raised the business rate mid-year because of fuel prices (Announcement 2026-11, modifying Notice 2026-10). So 2026 has two rates:
January 1 through June 30: 72.5 cents per mile
July 1 through December 31: 76 cents per mile
Medical and moving went from 20.5 cents to 23.5 cents on the same date. Charitable stays at 14 cents, because that one is set by statute and doesn't move.
If you drive 20,000 business miles and 10,000 of them land after July 1st, running the whole year at the old rate costs you $350 in deductions. Not life changing, but it's free money sitting on the table.
So go pull a report from your mileage app with a cutoff at June 30th. Two totals. Two rates. One clean log.
Point One: Your Entity Changes the Answer
This is where most of the bad advice lives. The vehicle rules don't operate the same way across entity types.
Sole Proprietor / Single Member LLC
Easiest case. The car and the business are the same taxpayer. You deduct on Schedule C, either method, and you're done.
Partnership
Here's the one people miss. If the car is in your personal name and not the partnership's, you can generally still deduct it, but the mechanism matters. Either the partnership reimburses you under the partnership agreement, or you deduct it as an unreimbursed partnership expense on your Schedule E if the partnership agreement requires you to bear those costs.
That second path only works if the agreement actually requires it. No requirement, no deduction. So check the agreement. If it's silent, fix it.
S Corporation
This is the one that trips up half of the business owners I talk to.
Your S corp is a separate entity from you. If you own the car personally and drive it for the business, the S corp can't just deduct your car. It has to reimburse you, and to do that cleanly you generally want an accountable plan.
An accountable plan is a written policy where you submit your business mileage, the company reimburses you at the IRS rate, and that reimbursement is a deduction to the company and tax-free to you. No payroll tax. No W-2 income.
Skip the accountable plan and you get one of two bad outcomes. Either the company deducts nothing, or the reimbursement becomes taxable wages to you and you've paid payroll tax on your own mileage. No bueno in any case.
It's a one-page document and a monthly expense report. That's the whole ask.
Point Two: The Door Locks Behind You
Here's what nobody tells you when you pick a method.
If you start with actual and take anything other than straight-line depreciation, you can never switch to mileage on that vehicle. Ever.
That includes bonus depreciation. That includes MACRS. That includes double declining balance. Which is to say, it includes what roughly 95% of people using the actual method are actually doing.
So if you bought the big SUV, took 100% bonus, and three years later realize the mileage method would give you a bigger deduction now that the depreciation is used up? Too bad. That door is closed. You're on actual for the life of the car.
If you start with mileage, you generally can switch to actual later. You'd move to straight-line depreciation over the remaining life, but the option stays open.
In other words, mileage keeps your choices. Actual with accelerated depreciation spends them.
That's not a reason to always pick mileage. A $90,000 truck at 100% bonus will beat mileage by a mile in year one and probably over the life of the car. But you should know you're making a permanent choice, not a yearly one. Make it on purpose.
Point Three: Depreciation Is a Loan, Not a Gift
This is the part I most want you to walk away with.
Depreciation is fundamentally a timing difference. You are not making income disappear. You are moving it. And one day the IRS may come back and ask for it.
That day is usually when you sell or trade in the car.
How Recapture Works
When you take depreciation, your basis in the car drops. Take $50,000 of depreciation on a $50,000 vehicle and your basis is now zero.
Sell that car for $25,000 and you have a $25,000 gain. All of it is depreciation recapture, taxed at ordinary rates. Not the friendly capital gains rate. Ordinary.
So if you're in a 37% bracket, that $25,000 trade-in just cost you about $9,250 in tax. On a car you thought you'd already written off.
The deduction was real. It was just early.
Mileage Is Cleaner Here
The mileage rate has a depreciation component baked in (35 cents of the 2026 rate), so it does reduce your basis too. But in practice, mileage-method vehicles tend to produce far less recapture drama, because you weren't zeroing out the basis in year one.
This is a genuine advantage of mileage that almost never makes it into the conversation.
So What Can You Do?
Nothing exotic. Just know it's coming.
When you take a big first-year write-off, set aside the fact that a chunk of it is borrowed. When you go to trade the car in, ask what the recapture looks like before you sign. Sometimes holding the car another year, or selling it at a different time, changes the math meaningfully.
The point is that a 100% write-off is not a 100% forever write-off. Plan like it's a loan and you'll never be surprised. Plan like it's free and you will be.
The Short Version
Two methods. Actual (real costs plus depreciation) or mileage (a rate per mile).
The 6,000 pound rule plus 100% bonus can put a huge deduction in year one. Buy the vehicle because you need it, not because of the deduction.
2026 has two mileage rates. 72.5 cents through June, 76 cents from July. Split your log at June 30th.
Partnerships need the agreement to require it. S corps need an accountable plan.
Take accelerated depreciation and you're locked into actual forever on that car. Start with mileage and you keep the option.
Depreciation is a timing difference. Recapture at ordinary rates is waiting for you at the sale.
Pick your method with your eyes open. Keep the log either way.
I hope this provided some value.
Stay smart,
Jonathan Sussman CPA
