You can deduct your vehicle expenses if you use your car for work. Keep a mileage log to track the miles for work purposes. For 2022, the IRS mileage rate is 58.5 cents per mile for the first six months and 62.5 cents per mile for the latter half. You cannot deduct actual car expenses like lease payments and insurance if you use the mileage rate.
Business Use vs. Personal Use
If you use your car only for business, deduct all costs related to it. If you use your car for both business and personal use, you may only deduct the business portion. The deduction depends on the percentage of miles driven for business.
Deductible and Non-deductible Costs
Sales tax paid on a vehicle purchase is also deductible. Include it if the sales tax exceeds state and local income tax. For passenger vehicles eligible for bonus depreciation in 2021, the first-year limitation is $18,200.
What is not deductible? Commuting miles between your home and workplace do not qualify. Expenses like fuel, insurance, and registration fees cannot be claimed if using the mileage rate.
Summary and Documentation
To summarize, track your business mileage and apply the IRS standard mileage rate to determine your deduction. Document expenses to support deductions in case of an audit.
Limits exist too. For cars eligible for bonus depreciation in 2021, the first-year limit is $18,200. You cannot deduct lease payments and actual costs if claiming the mileage rate.