I bought a car, can my business take the tax deduction in 2025?
- Rebecca Tabert, CPA
- Jul 29
- 8 min read
Did you purchase a car and wonder if your business can deduct the expense in 2025? Business vehicle deductions can be valuable, but the rules depend on how the car is used, titled, and recorded. Learn how to make sure your vehicle qualifies.
If you bought a car and use it for your business, you might be able to deduct part or all of the cost on your taxes. But the IRS does not allow just anyone to write off a car purchase without meeting certain requirements. It depends on how much you use the vehicle for business, who the car is titled to, and whether you are keeping proper records.
You need to know the difference between personal and business use, what kind of car you bought, and whether you want to take a large deduction now or spread it out over several years. These choices can affect how much you save on taxes and when you save it. Taking the right steps early, like tracking your mileage and filing the right forms, can make a big difference come tax time.
Can my business deduct the car I purchased?
Whether your business can deduct the car you purchased depends on a few key factors, including how the vehicle is used, who owns it, and how your business is structured. The IRS allows deductions for business-use vehicles, but only under specific conditions.
Here is what matters most:
Business Use: The vehicle must be used for business purposes. If you use the car for both personal and business reasons, only the business-use portion is deductible. You will need to track mileage to support this.
Ownership: The car must be either titled in the name of the business or used primarily for business by a sole proprietor or self-employed person. If the car is under your personal name but used for business, deductions are still possible, but with more limitations.
Type of Deduction: You can usually choose between two methods for writing off business vehicles:
Standard Mileage Rate: Multiply your business miles driven by the IRS rate (which changes each year).
Actual Expenses: Deduct a portion of actual vehicle expenses, including depreciation, gas, repairs, maintenance, insurance, and registration.
Vehicle Type: Larger vehicles (like SUVs, vans, or trucks over 6,000 pounds) may qualify for bigger deductions under Section 179 and bonus depreciation rules.
Depreciation Limits: Passenger cars have annual depreciation limits, while heavier vehicles may allow faster write-offs.
Talk to a tax professional to determine which method fits your situation best and to ensure your deduction is done correctly.
Who can take a business deduction for the car if the title is under my name?
If the car is titled under your personal name but used for business, you may still be able to deduct the business-use portion, but it depends on your business type and how the vehicle is used.
Here is how it typically works:
Sole Proprietors and Single-Member LLCs: If you are self-employed and the vehicle is titled in your name, you can deduct business-related use on your personal tax return using Schedule C. You must keep accurate records showing how much of the use is for business versus personal.
Partnerships and Corporations (Including S Corps): If the vehicle is personally owned but used for a business entity, you generally cannot deduct vehicle expenses through the business return. Instead, the business may reimburse you for business mileage or actual costs, and you would deduct those on your personal return as employee expenses or mileage reimbursements. This setup requires a written reimbursement policy and mileage logs.
Mixed-Use Vehicles: If the car is used for both personal and business purposes, you can only deduct the percentage used for business. You must document this with a mileage log, app, or spreadsheet.
Title Transfers: If you intend for the business to own the vehicle, the car must be titled in the business’s name. This may trigger registration, insurance, and liability changes that need to be considered carefully.
Keep clear and complete documentation, including mileage logs, business purpose notes, and any reimbursements from the company. The IRS will not allow a deduction without proof.
What year can I deduct the purchase of my car?
You can usually deduct the cost of the car in the same tax year you place it into service for your business. That means the year you start using the car for business purposes, not just the year you bought it. Timing is important, especially if you plan to claim depreciation or bonus depreciation.
Here are the key points to consider:
Placed in Service: The car must be ready and available for use in your business, and you must actually begin using it in that year. Simply buying the car does not qualify. You must use it for work before December 31st of the tax year to take the deduction.
Section 179 Deduction: If you choose to deduct a large portion of the car’s cost in the first year under Section 179, you must use the vehicle more than 50% for business. This deduction applies only in the year the vehicle is placed in service.
Bonus Depreciation: For qualifying vehicles, you may be able to write off a significant amount of the cost in the first year using bonus depreciation (if available under current law). This is also only allowed in the year the vehicle enters service.
Standard Mileage vs. Actual Expenses: If you use the standard mileage rate method, you claim your deduction based on business miles driven in the year the vehicle is placed in service. If you use actual expenses, you claim depreciation starting in the same year.
If you bought a car late in the year but did not use it for work until the following year, you must wait to deduct it. Keep detailed records of when and how the car was first used to back up your deduction.
What steps do I need to take to take a business deduction for my car?
To deduct a vehicle for business purposes, you need to follow specific steps and maintain accurate records. The IRS will not allow the deduction if the required documentation is missing, incomplete, or inconsistent. Taking the right actions early on helps ensure your deduction is valid and maximized.
1. Track Business Use:
Use a mileage log, tracking app, or physical logbook to record every trip made for business purposes.
Record the date, starting and ending mileage, destination, and purpose of the trip.
Keep personal and business use clearly separated.
2. Choose a Deduction Method:
Standard Mileage Rate: Multiply your business miles by the IRS-approved rate for the year.
Actual Expense Method: Deduct the business portion of expenses like gas, repairs, maintenance, insurance, registration, and depreciation.
3. Determine Ownership and Usage:
If the car is in your personal name, make sure you document its use for the business.
If your business owns the car, ensure that title, registration, and insurance are properly aligned.
4. Check Eligibility for Section 179 and Bonus Depreciation:
Confirm whether your vehicle qualifies (for example, vehicles over 6,000 pounds may allow a larger deduction).
Make sure you are using the car more than 50% for business if you want to claim Section 179.
5. Maintain Receipts and Expense Records:
Keep receipts for all related expenses, including fuel, oil changes, tires, insurance, and registration fees.
Document any down payment, loan details, and interest if you financed the car.
6. Consult a Tax Professional Before You File:
Business vehicle deductions are heavily scrutinized. A tax professional can help ensure your records are in order and that you are choosing the best deduction method based on your situation.
Taking these steps throughout the year, not just at tax time, can make a big difference in the size and success of your deduction.
Most common myths about car business tax deductions
Myth: If I use my car for any business at all, I can deduct the whole thing.
Reality: Wrong. Only the portion of use that is directly related to your business is deductible. If you use the car 60% for business and 40% for personal errands, you can only deduct 60% of qualified expenses or mileage.
Myth: I need to buy a car in the business name to take a deduction.
Reality: Not necessarily. Sole proprietors and single-member LLCs can deduct business use of personally owned vehicles. However, clear records are critical to prove how and when the car was used for business.
Myth: I can make up the mileage at the end of the year.
Reality: No, the IRS requires contemporaneous (real-time) records. If you wait until the end of the year to guess at your mileage, your deduction may be denied during an audit.
Myth: All SUVs and trucks automatically qualify for large deductions.
Reality: Not true. The vehicle must meet specific weight and usage requirements to qualify for expanded deductions under Section 179 or bonus depreciation. Personal-use trucks do not qualify.
Myth: I can switch between mileage and actual expenses every year.
Reality: You must pick a method the first year the vehicle is placed in service. If you start with the standard mileage rate, you can switch later, but only under certain rules. Choosing incorrectly can limit your options and deductions in future years.
(FAQ) Frequently asked questions about car business tax deductions
Question: Can I deduct the full purchase price of my car in the year I bought it?
Answer: It depends on the type of vehicle and how it is used. Some vehicles may qualify for full or partial first-year write-offs using Section 179 and bonus depreciation, but only if used more than 50% for business. Passenger vehicles have stricter depreciation limits.
Question: What if I drive my personal car for business sometimes—can I still deduct anything?
Answer: Yes, you can deduct the business portion using either the standard mileage rate or actual expenses. You must track your business miles separately and keep records to prove your usage.
Question: Do electric or hybrid vehicles qualify for special deductions?
Answer: Electric vehicles may qualify for separate tax credits, but business deductions still follow the same rules for use and documentation. You may be able to combine a business deduction with a clean vehicle tax credit if the car meets the requirements. *Keep an eye out for further changes to this as the OBBBA roles out new tax law changes. We will post future articles regarding the most likely outcomes of the OBBBA's turn out and the practical applications we expect to see.
Question: Can I take a deduction if I lease the car instead of buying it?
Answer: Yes, lease payments can be deductible based on the business-use percentage of the vehicle. However, different rules apply compared to vehicle purchases, and luxury car limits may still restrict how much you can deduct.
Question: What happens if I stop using the car for business after I deducted it?
Answer: If you claimed large deductions up front, especially through Section 179, and later reduce your business use below 50%, you may have to “recapture” some of the deduction and pay back a portion as income. Keeping consistent use and records is important.
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Final Thoughts
Buying a car for your business can open the door to valuable tax deductions, but only if you follow the right steps. Tracking mileage, maintaining receipts, and choosing the right deduction method all require careful planning to ensure your business use is clearly documented and defensible if questioned. The title, use, and structure of your business all play a role in what you can deduct and when.
Every situation is different, and the tax rules around vehicle deductions can get complicated fast. Speak with a qualified tax professional to make sure you are getting the maximum benefit without risking penalties or missed opportunities.
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