What is considered business use of a vehicle?

The IRS has specific rules about how you must use your vehicle to be considered a business use and what types of vehicles can qualify. 

According to the IRS, vehicle use falls into three categories: business, personal, or commuting. In order to be eligible for a deduction for your vehicle use, the purpose must be for business. (Unfortunately, commuting costs are usually not deductible, no matter how far you have to drive.)

“Business use,” as defined by the IRS, generally refers to ordinary and necessary costs related to travel from one work location to another within your tax home area. The tax home area is usually the entire city or general area where your main place of business is located, regardless of where you live.

Other types of travel that you are typically able to deduct include:

  • Travel from one job to another
  • Visiting customers or traveling from one customer or client to another
  • Attending a business meeting away from the regular workplace. 
  • Getting from home to a temporary workplace when the taxpayer has one or more regular places of work. (These temporary workplaces can be either within or outside the taxpayer’s tax home area.) 
  • Travel from your regular place of work to perform work-related tasks, such as picking up supplies or inventory, making a bank deposit, or checking a business P.O. box

Expenses related to travel away from home overnight are travel expenses; therefore, you cannot deduct them as business use of the vehicle. Additionally, as mentioned above, you generally cannot deduct the costs of driving your car or truck between your home and your primary or regular workplace. These costs are personal commuting expenses.

What vehicles can you write off for business?

You could potentially write off any vehicle that you use for business. However, the IRS rules for deductions depend on the type of vehicle and how it is used. 

Ordinarily, you can deduct expenses related to the use of a car, van, SUV pickup, or panel truck for business activities as transportation expenses. But the IRS treats the use of larger vehicles, such as tractor-trailers, differently.

Additionally, there are some other types of vehicles that do not qualify. For example: 

  • Vehicles used as equipment, such as dump trucks
  • Vehicles used for hire, such as taxi cabs or airport transport vans

However, it may be possible to use the standard mileage rate when it comes to cars used for hire, such as taxis, Uber, Lyft, or ride sharesThe standard mileage rate eliminates the need to keep track of actual costs, such as depreciation, lease payments, maintenance and repairs, gasoline, oil, insurance, and vehicle registration. When it comes to these expenses, the standard mileage rate is used in their place, meaning if you choose to use this method, you may not deduct the actual expenses as well. 

The standard mileage rate is essentially a default cost per mile set by the IRS, which taxpayers can use to determine the deductible costs of a vehicle owned or leased. The IRS adjusts the standard mileage rate annually to reflect changes in the cost of operating a vehicle. In some situations, it is adjusted during the year.

If a taxpayer wishes to use the standard mileage rate for a leased vehicle, it must be used for the entire lease period. In other words, a taxpayer must use the standard mileage rate for the first year a vehicle is available for business use to use the standard mileage rate in subsequent years. 

Some costs are not included, which are still deductible even if you choose to deduct the standard mileage rate. These include: 

  • Auto loan interest (business-use percentage). 
  • Personal property tax (business-use percentage). 
  • Parking fees and tolls (if business-related).

What is the standard mileage rate in 2022?

For 2022, the standard mileage rate for the cost of operating your car for business use is 58.5¢ per mile before July 1 and 62.5¢ per mile after June 30. 

To use the standard mileage rate for a car you own, the vehicle must have been used for business in the first year it was available. You can choose between the standard mileage rate method or actual expenses in later years. To reiterate, if you use the standard mile, you cannot also deduct actual expenses for that year. 

Furthermore, you cannot use the standard mileage rate if you: 

  • Use five or more cars at the same time, such as in fleet operations (you may, however, be able to deduct your actual expenses for operating each of the cars provided you are using all five or more at the same time)
  • Claimed a depreciation deduction for the car using any method other than straight line
  • Claimed a Section 179 deduction on the car
  • Claimed the special depreciation allowance on the car, or
  • Claimed actual car expenses for a car you leased.

Can you deduct a personal car used for business?

In short: Yes, you most likely can do so, but the amount you can deduct will change based on how you use your vehicle. 

For example, if you use your car only for business purposes and nothing else, you may be able to deduct its entire cost of ownership and operation (subject to limitations). On the other hand, if you use the vehicle for business and personal purposes, you can only deduct expenses related to its business use. 

For example, if you drive your car 20,000 miles during the year, including 12,000 miles for business use and 8,000 miles for personal use, you can only claim 60% (12,000 divided by 20,000) of the cost of operating your car. 

How much can you use a business vehicle for personal use?

A business-owned vehicle, such as a company car, does not qualify as taxable income when used only for business purposes. However, if you use the company car for personal use, it generally becomes taxable as part of your wages and must be reported on your W-2. 

Basically, the personal use of a company car has value, and the IRS treats that value as additional wages. Regarding how much you can use the business vehicle for personal use, that is up to your employer — but it needs to be reflected in your taxable wages. 

Unfortunately, just as in the case of a personal vehicle mentioned, your commute does not count as business use, even if you are commuting in a company car. 

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