What are the two different methods for deducting work vehicles?

When you use a vehicle for work, the IRS lets you deduct expenses using two main methods:
 
1. Standard Mileage Rate Method
  • You deduct a fixed amount per mile driven for business purposes (i.e. – the standard rate in 2024 is 65.5 cents per mile). This standard rate effectively covers your expenses like gas, maintenance, depreciation, etc.
  • You can also add parking fees & tolls, interest expense on your auto loan, and property taxes on the vehicle (for CA, this is the registration license fee)
  • Your total business miles are multiplied by the mileage rate to arrive at your deduction.
 
The benefit of this method is generally it’s simple record-keeping, essentially just needing a mileage log. The negative is that this method may provide a smaller deduction if you have high actual costs.
 
EXAMPLE: If you drive 10,000 business miles in a year, your deduction = 10,000 × $0.655 = $6,550.
 
2. Actual Expense Method
  • You track and deduct the actual costs of operating the vehicle for business. This includes things like:
    • Gas, oil, repairs
    • Vehicle insurance
    • Interest expense on your auto loan (or vehicle lease payments)
    • Vehicle registration fees
    • Personal property tax
    • Parking fees & tolls
    • Any other expenses related to the vehicle (tires, garage rent, etc.)
  • You then multiply your total expenses by the percentage of miles driven for business (business miles driven, divided by total miles driven).
 
EXAMPLE: If you drive 10,000 business miles and 20,000 total miles, your business use percentage would be 50%. If you then had $15,000 in vehicle expenses for the year, your deduction would be $7,500.
 
Key points:
  • You must choose one method per vehicle for the year.
  • The standard mileage rate can only be used if you used it the first year you put the vehicle in service.
  • If you use the actual expense method the first year, you cannot switch to the standard mileage method later for that vehicle.
  • It’s important to keep good records, including a mileage log, which you can find on our website.