Vehicle expenses: standard mileage vs. actual costs, and the log you need

Two ways to deduct a business vehicle

If you’re self-employed and use a car for business, you can deduct the business share of its cost in one of two ways: the standard mileage rate or actual expenses. Both depend on the same number, your business miles, so the log comes first no matter which you choose.

Sole proprietors and single-member LLC owners report vehicle costs on Schedule C, with depreciation on Form 4562. If you’re a W-2 employee, unreimbursed driving isn’t deductible on your federal return; the One Big Beautiful Bill Act made the suspension of those miscellaneous itemized deductions permanent.

The standard mileage rate for 2026

The standard rate multiplies business miles by a per-mile rate the IRS sets. It’s meant to cover gas, maintenance, insurance and depreciation, so you don’t track those separately. Business parking and tolls are still deductible on top, and so is the business share of car loan interest if you’re self-employed.

2026 is unusual. The IRS set the business rate at 72.5 cents per mile in January, then raised it to 76 cents per mile for miles driven on or after July 1, 2026, citing higher fuel prices. For 2025 the rate was 70 cents.

That split means your log needs dates, not just a year-end total. Say you drive 16,000 business miles in 2026, 8,000 in each half of the year. The deduction is 8,000 × $0.725 = $5,800 plus 8,000 × $0.76 = $6,080, or $11,880, plus parking and tolls.

Part of the rate is treated as depreciation and reduces your car’s basis: 35 cents per mile for 2026. That matters when you sell or trade the vehicle, because a lower basis means more taxable gain.

The actual expense method

Actual expenses add up what the car really costs, then deduct the business-use percentage (business miles divided by total miles).

Continuing the example: you drove 20,000 total miles, 16,000 for business, so business use is 80%. You spent $9,000 on fuel, insurance, repairs and registration, so $7,200 is deductible. Depreciation comes on top, and for a newer car it’s often the largest piece.

• Fuel, oil, tires, repairs and maintenance
• Insurance, registration and license fees
• Lease payments (subject to an income inclusion for higher-value leased cars) or depreciation if you own
• The business share of car loan interest (deductible under either method if you’re self-employed; a separate personal deduction for qualified vehicle loan interest now exists on Schedule 1-A, but you can’t deduct the same interest twice)
• Garage rent, plus business parking and tolls

Depreciation limits and the heavy-vehicle exception

Passenger cars are subject to annual depreciation caps. For vehicles placed in service in 2026, Rev. Proc. 2026-15 limits first-year depreciation to $20,300 when bonus depreciation applies, or $12,300 without it. Later years are capped at $19,800, then $11,900, then $7,160 each year after. The caps are reduced by personal use.

In the example, a $60,000 car used 80% for business that qualifies for bonus depreciation is capped at $20,300 × 80% = $16,240 in year one. Add $7,200 of operating costs and the actual-expense deduction is about $23,440, versus $11,880 under the standard rate. The gap narrows in later years as the caps shrink.

Vehicles rated above 6,000 pounds gross vehicle weight, such as many large SUVs and pickups, aren’t subject to those passenger-car caps. The OBBBA restored 100% bonus depreciation for qualified property acquired after January 19, 2025, so the business share of a heavy vehicle can potentially be deducted in its first year. Separately, the Section 179 deduction for SUVs is capped at $32,000 for tax years beginning in 2026.

• Bonus depreciation and Section 179 require more than 50% business use. If business use later drops to 50% or less, some of the deduction is recaptured as income.
• A large first-year write-off also means little or no depreciation later, and a taxable gain when you sell.
• Many states don’t follow federal bonus depreciation, so the state return may differ.

Which method to choose, and why year one matters

Standard mileage tends to win for an economical car driven a lot. Actual expenses tend to win for a more expensive vehicle, a heavy vehicle, high operating costs, or fewer miles with high fixed costs.

The first year locks in more than people realize.

• Use the standard rate in the first year a car is used for business and you can generally switch to actual expenses later (using straight-line depreciation).
• Start with actual expenses and accelerated depreciation, and you generally can’t switch that vehicle to the standard rate.
• For a leased car, choosing the standard rate means using it for the entire lease, including renewals.
• The standard rate isn’t available if you operate five or more vehicles at the same time.

Commuting is not business

Driving from home to your regular place of work is commuting, and it isn’t deductible however far it is or whether you take calls on the way.

Business miles include driving between work locations, to client sites, to meet customers, or to run business errands. If your home office qualifies as your principal place of business, trips from home to other work locations generally count as business miles. That’s one of the quieter benefits of a properly set-up home office.

A common mistake: a consultant with a home office who also rents a coworking desk. If the coworking space is the regular workplace, the drive there may be commuting even though the home office exists.

S corp and partnership owners

If you operate through an S corporation, you’re an employee of your company, so you can’t deduct car costs on your personal return. The two usual approaches are:

• You own the car and the company reimburses business miles under an accountable plan, often at the standard rate. The reimbursement is deductible to the company and tax-free to you, provided you submit a log.
• The company owns the car and deducts its costs. Your personal use, including commuting, is a taxable fringe benefit that has to be valued and added to your W-2.
• Partners should check the partnership agreement: unreimbursed partner expenses are deductible only in limited cases.

The log you actually need

The IRS expects a contemporaneous record, kept at or near the time of the trip, not reconstructed in April. Vehicle deductions are a frequent audit adjustment, and a missing log can sink an otherwise legitimate deduction.

Each business trip should show the date, the destination, a specific business purpose (a client name or task, not just “meeting”), and the miles driven. Record the odometer reading on January 1 and December 31, and in 2026, note the reading on July 1 too so the two rates are easy to apply.

A phone-based tracker that logs trips in the background is the easiest way to stay compliant. A notebook in the glovebox works if you actually use it. Keep receipts for parking and tolls, and every vehicle cost if you use actual expenses.

Before buying a vehicle for the business, it’s worth running both methods for your expected miles. That’s a comparison Tally Tax does routinely, especially for heavy vehicles, where the timing of the deduction matters as much as its size.

Frequently asked questions