Business Mileage or Actual Costs: Deducting a Vehicle
The two ways to deduct business use of a vehicle, the first-year choice that locks you in, and the mileage log that makes either one work.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Business owners can deduct vehicle use in one of two ways: the standard mileage rate, which multiplies business miles by an IRS rate covering all operating costs, or the actual expense method, which deducts the business share of fuel, insurance, repairs, and depreciation. Either way, you need a record of business miles.
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How does each method work?
Standard mileage rate. Multiply business miles by the IRS rate for the year (70 cents a mile for 2025; for 2026, 72.5 cents a mile for January 1 through June 30 and 76 cents a mile from July 1 through December 31, after a midyear IRS increase). Parking and tolls for business trips are added on top. The rate already includes depreciation, gas, insurance, and maintenance, so none of those are deducted separately.
Actual expenses. Add up the year's costs — fuel, oil, repairs, tires, insurance, registration, lease payments or depreciation, and interest for a self-employed owner — and multiply by your business-use percentage (business miles divided by total miles).
| Factor | Standard mileage | Actual expenses |
|---|---|---|
| Recordkeeping | Mileage log | Mileage log plus every receipt |
| Works best for | High-mileage, economical vehicles | Expensive vehicles, low mileage, high operating costs |
| Depreciation | Built into the rate | Claimed separately (bonus or Section 179 possible) |
| Switching later | Can switch to actual in later years (straight-line depreciation) | Generally cannot switch to standard for that vehicle |
| Fleets of five or more vehicles at once | Not allowed | Required |
Which method should you pick in year one?
The first year matters. To use the standard rate on a vehicle you own, you must choose it in the first year the vehicle is used for business. If you start with actual expenses on a vehicle you own, you cannot move to the standard rate for that vehicle later — and claiming Section 179, bonus, or other accelerated depreciation on it also rules the standard rate out. Run both calculations before filing the first return.
What about heavy SUVs and trucks?
Passenger vehicles rated at 6,000 pounds gross vehicle weight or less face annual depreciation caps. SUVs, pickups, and vans above 6,000 pounds avoid those caps and may qualify for large first-year write-offs through Section 179 (subject to a separate SUV limit — $32,000 for 2026) and bonus depreciation, which the 2025 tax law restored to 100 percent for qualifying property acquired after January 19, 2025. The write-off is only as large as your business-use percentage, and if business use later falls to 50 percent or below, part of the deduction is recaptured as income.
Is commuting deductible?
No. Driving from home to your regular place of business is personal commuting. Trips from your office to a client, between job sites, or to a supplier are business. If your home office is your principal place of business, trips from home to clients count as business miles.
What does a mileage log need?
For each business trip: the date, the destination, the business purpose, and the miles. Record odometer readings at the start and end of the year to establish total miles. Logs kept as you go — an app or a notebook in the car — carry far more weight than one reconstructed at tax time.
Frequently asked questions
Can an S corporation owner use the standard mileage rate?
Yes, if the corporation reimburses business miles at the standard rate under an accountable plan. The reimbursement is deductible to the corporation and tax-free to the owner.
Can I deduct the new car loan interest deduction as a business expense?
The 2025 law added a separate personal deduction, for 2025 through 2028, of up to $10,000 a year of interest on a loan taken out after 2024 to buy a new car, SUV, van, pickup, or motorcycle that had its final assembly in the United States and is for personal use, secured by a first lien on the vehicle. It shrinks by $200 for each $1,000 of modified adjusted gross income above $100,000 ($200,000 on a joint return), and the vehicle identification number must be on the return. It is not a business deduction; a self-employed owner deducts the business share of interest under the business rules.
Is a leased vehicle treated differently?
Under actual expenses, you deduct the business share of lease payments, reduced by an "inclusion amount" for higher-value vehicles. The standard rate is available for leased vehicles if used for the entire lease.
What if I use two vehicles for business?
Each vehicle has its own method choice and its own log.
Official sources
The IRS explains: “If you use your car for business, charity, medical or moving purposes, you may be able to take a deduction based on the mileage used for that purpose.” — Internal Revenue Service, Standard mileage rates, https://www.irs.gov/tax-professionals/standard-mileage-rates
The IRS explains: “If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use either the standard mileage rate or actual expenses.” — Internal Revenue Service, Publication 463 (2025), Travel, Gift, and Car Expenses, https://www.irs.gov/publications/p463
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk compares both vehicle methods before the first-year choice locks in. See pricing or book a free fit call.
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