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What vehicle tax deductions can I write off for tax year 2020?
Using your own car for work? Find out what expenses you can claim and what tax deductions you may be eligible for.
Get the 411 on vehicle tax deductions by finding out if you’re eligible, what you can claim and how to calculate your deduction amount.
Who’s eligible for the vehicle tax deduction?
If you’re self-employed or own your own business and you use your car for business purposes, you can deduct the cost of its operation from your taxes. But if a company or person employs you and you use your car on the job, those are considered unreimbursed expenses, which can’t be deducted.
You’re also limited to deducting vehicle expenses over 2% or your adjusted gross income.
Vehicle tax deductions you can and can’t write off
This table highlights which expenses you can and can’t write off under the vehicle tax deduction:
|Vehicle registration fees|
|Driving your car for personal reasons|
|Your commute to and from work|
|Fines for traffic tickets|
|Expenses totaling less than 2% of your adjusted gross income|
|Driving costs if employed by another person or business|
How can I calculate my vehicle tax deduction?
The IRS allows expenses to be claimed in two different ways, the standard mileage rate and the cost of actual expenses. Before claiming anything on your taxes, it’s best to sit down with a calculator to figure out which method will benefit you the most.
Standard mileage rate
If you calculate your deduction based on the standard deduction rate, you’ll need to track how many miles you’ve driven your car for business purposes. Then multiply your mileage by the standard mileage rate set by the IRS. For tax year 2020, the standard mileage rate is $0.575 per mile.
If you calculate your deduction based on actual expenses, you’ll need to keep receipts for everything you spend on your car and then add it all up at the end of the year. Common vehicle expenses include:
- Loan interest
Example: Standard mileage rate vs. actual expenses
In the past year, Dave drove 20,000 miles, and 15,000 of those miles were for work. Dave kept track of both his mileage and expenses so that he’d be able to calculate how much he can deduct using both methods at tax time.
Standard mileage rate
Dave drove 15,000 miles for work. For tax year 2020, he can deduct $0.575/mile.
15,000 x $0.575 = $8,625
After gathering up all of his receipts, Dave calculates that he spent $8,000 on his car, including gas and maintenance. Since 75% of the miles he drove were for work, he’ll be able to deduct 75% of those costs.
$8,000 x $0.75 = $6,000
Dave will be able to deduct more using the standard mileage rate. But that’s not always the case. If Dave’s car would’ve had a major repair, he may have been better off deducting the actual cost.
IRS standard mileage rates by year
|January to June 2011||$0.51/mile||$0.14/mile||$0.19/mile|
|June to December 2011||$0.555/mile||$0.14/mile||$0.235/mile|
- Hire a professional. Tax laws can be tricky, and there’s often a fine line between what’s considered personal and business use. For example, if you have no permanent office, driving within your metropolitan area for work may not be deductible. A certified accountant can help you maximize your deductions without getting into trouble with the IRS.
Tax benefits for electric cars
When you purchase an electric vehicle, the federal government offers a tax credit between $2,500 and $7,500 depending on the size of the battery and vehicle — and some states like California offer even more incentives.
Can I deduct my vehicle registration?
Yes, you can write off any fees for registering most vehicles, excluding pickup trucks made before 2010, hearses, camper trailers, motorcycles and non-passenger vans.
How can I calculate my vehicle registration tax deduction?
How you’ll calculate your vehicle registration tax deduction depends on the type of vehicle you have and how old it is.
If the model year for your vehicle is 2010 or later, you’ll divide your vehicle’s weight by 250. Then, subtract that number from your registration fee to get your deduction amount.
For example, if you paid $100 to register your vehicle that weighs 3,000 pounds, you’d divide 3,000 by 250, which is 12.
$100 – 12 = 88, so your vehicle registration tax deduction is $88.
If your vehicle is older than this, simply multiply your registration fee by 60% to get your deduction amount. For example, if you paid $100, your vehicle registration tax deduction would be $60.
Is there a vehicle purchase tax deduction?
Yes, you can get a tax break for buying a new or used business vehicle using a Section 179 deduction. This deduction allows you to write off a large chunk of the vehicle’s cost when it is:
- Used for business purposes at least 50% of the time
- Put into service the same year the deduction is claimed
The exact amount you’ll be able to deduct depends on the vehicle’s weight and class. Generally, the bigger the vehicle, the more you can deduct.
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To maximize your vehicle deductions, keep track of your business and personal mileage along with any receipts for vehicle-related expenses. And to make sure you’re getting the best deductions without running afoul of any tax laws, check with the IRS and consider hiring a professional to help you put together your tax return.
Frequently asked questions
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