- business purposes,
- medical purposes,
- moving and relocating, or
- charitable service.
In these circumstances, you'll be able to deduct the cost of operating your car or truck. The amount of your deduction is based on the number of miles you've spent driving for the tax-deductible purpose. In lieu of calculating your actual car expenses, you can opt for a standard mileage rate.
Business PurposeBusiness purpose involves driving from your place of employment to another work site, to meet with a client, or going to a business meeting. Commuting from your home to the office doesn't count as a business purpose. However, if you have an office in your home, then traveling from your home office to meet with a client or conduct business is tax-deductible. The deduction for business use of a vehicle is taken on Schedule C if you're self-employed, Schedule F if you're a farmer, or as an itemized deduction as part of your unreimbursed business expenses (Form 2106) if you're an employee.
Medical PurposeMedical purpose involves driving for the purpose of obtaining medical care for yourself or your dependents. The drive must be "primarily for, and essential to, medical care," according to the IRS (Publication 502). The deduction is taken on your Schedule A as part of your medical expenses.
Moving and RelocatingThe cost of driving your car while moving to a new residence may be deductible as part of the moving expense deduction. To qualify, you need to relocate at least 50 miles farther from your old home than the distance between your old home and your old job. This deduction is taken on Form 3903.
Charitable PurposeYou can deduct car expenses if you used your car in providing services to a charitable organization. Driving to perform volunteer services for a church, charity or hospital would be deductible. This deduction is taken on your Schedule A as part of your charitable donations.
Actual ExpensesWhat counts as a car or truck expense? Here's a list of what can be deducted:
- Parking fees and tolls
- Interest on a loan (for self-employed people only)
- Vehicle registration fees
- Personal property tax
- Lease and rental expense
- Fuel and gasoline
- Repairs, including oil changes, tires, and other routine maintenance
Different car expenses are deductible depending on the purpose of the drive. For the charity and medical expense deductions, you cannot claim depreciation, insurance, or repairs.
Standard Mileage RatesInstead of tallying up all your actual car expenses, you can use a standard mileage rate to figure your deduction. The standard mileage rates for 2013 are as follows:
- 56.5 cents per mile for business,
- 24 cents per mile for medical or moving purposes, and
- 14 cents per mile for charitable service.
The standard mileage rates for 2012 are as follows:
- 55.5 cents per mile for business,
- 23 cents per mile for medical or moving purposes, and
- 14 cents per mile for charitable service.
Taxpayers can also deduct parking fees and tolls in addition to the standard mileage rate. In Publication 463, chapter 4, the IRS writes, "In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses.)"
Which is Better: Actual Expenses or the Standard Mileage Rate?You should use whichever method will result in a larger deduction. It varies from person to person depending on how many miles you drive, the amount of depreciation you are claiming, and all the other expense variables. So crunch the numbers and figure out which will be best for your tax situation.
Generally speaking, claiming the standard mileage rate works results in less paperwork and is best suited for situations in which you drive your car sometimes for work, charity or medical appointments, and you don't want to have to dig up all your car-related expenses.
Just be aware that in order to claim the standard mileage rate, you will need to choose that method in the first year that you use your car for business purposes. If you begin by claiming actual expenses, you'll need to stick with the actual expense method for the as long as the vehicle is used for business purposes. The IRS explains it this way, "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." There's additional records you will need, see the IRS Publication 463 for more details.
Where to Claim Car and Truck Expenses?For self-employed people, vehicle expenses are reported on Schedule C.
For employees, vehicle expenses are reported on Form 2106 for Employee Business Expenses. This deduction is a miscellaneous itemized deduction, subject to the 2% of adjusted gross income limit. That means, unreimbursed employee expenses are deductible, but you don't get a full dollar-for-dollar deduction on your tax return.
For medical use of the car, the vehicle expenses are reported on Schedule A along with other medical expenses.
For charitable use of the car, the expense is reported on Schedule A along with other charitable donations.
Keeping Good RecordsTo prove you are eligible to deduct your car and truck expenses, you should keep a mileage log.
A mileage log needs to contain the date of each tax-deductible trip you make, showing how many miles you drove and for what purpose. You'll also need to know the total number of miles you drove for the year, so it would be a good idea to indicate your odometer reading at the first of each year.
You will also need to keep track of your automobile expenses. An easy way to keep track of these expenses is to use a personal finance program. This will make it easier at tax time to generate a report of your total car expenses for the year.
Page last updated: November 27, 2012.