If your vehicle is used for business purposes, you may be able to deduct your vehicle expenses. If you use your vehicle for both business and personal purposes, you should allocate your expenses based on the business percentage use of your vehicle. There are two methods to calculate your business expense portion of your vehicle, the Standard Mileage Rate or Actual Vehicle Expenses.
Keep in mind, your Maserati or Lamborghini may not qualify…
Standard Mileage Rate
For year 2013, the standard mileage rate for business purposes is $0.565 cents per business mile, $0.24 cents per mile relating to medical or moving expenses and $0.14 cents per mile involving charitable work.
If you elect to use the standard mileage rate, you must choose to use it in the first year the vehicle is available for use in your business. Then in later years, you can continue to use either the standard mileage rate or choose to use actual vehicle expenses.
Based on the following, the IRS does not allow the use of the standard mileage rate if you:
Use 5 or more vehicles at the same time
Used a depreciation method other than the straight line depreciation method
Previously claimed Section 179 deduction for the vehicle
Used the special depreciation allowance (50% additional depreciation based on the vehicle’s depreciable basis)
Previously claimed actual vehicle expenses for a leased vehicle after 1997
Received a qualified reimbursement from your employer as a rural mail carrier
Actual Vehicle Expenses
If you opt not to elect to use the standard mileage rate, you may be able to deduct your actual vehicle expenses for business use. Actual vehicle expenses includes but not limited to depreciation, gas, oil, repairs, vehicle insurance, interest on vehicle loan, vehicle registration fees, vehicle personal property tax, vehicle lease or rental expenses, parking fees, toll fees, and other expenses relating to your vehicle. See business use and personal use below to calculate the business percentage use of your vehicle.
Business Use and Personal Use
If you use your vehicle for both business and personal purposes, you must calculate the total mileage used for the year and the total business mileage used. Divide the business mileage into your total mileage you calculated which gives you the business percentage use. Your calculated business percentage use allows you to deduct a % of your actual car expenses listed as a business expense.
If you are employed and have used your personal vehicle for any business related purpose, you may be able to claim those expenses on your return as an itemized deduction on Schedule A Form 1040 if your employer has not reimbursed those expenses. To itemize the deductions, it would need to exceed 2% of your adjusted gross income. In addition, if your vehicle expenses were more than what your employer reimbursed you for, then you may be able to deduct the difference on your return also.
Unless you are using your vehicle entirely for your business, you would not able to deduct the full cost of purchasing, maintaining and repairing it. However, you should deduct what you are allowed to. Most importantly, you must have documentation to support your expenses to be able to determine which portion is business and personal.