Vehicle deductions and depreciation recapture

How it works

The standard mileage method multiplies business miles by this year's official standard mileage rate (not yet verified here; see the official source below) per mile, and parking and tolls are added on top; it requires a log of date, miles, and purpose for each trip, and it has to be chosen in the first year the car is used for business to remain available. The actual method takes the business percent of gas, insurance, repairs, registration, lease payments or depreciation, and the depreciation on a passenger car is capped by yearly limits the IRS sets. Commuting from home to a regular workplace is never deductible under either method. The standard rate includes a depreciation component, so even a mileage user has a lowered basis in the car. When the car is sold for more than its adjusted basis, the gain up to the depreciation taken is recaptured as ordinary income rather than capital gain.

What it gives

The standard rate needs a mileage log and nothing else, with no receipts for gas or repairs.

The actual method can give a much larger deduction for an expensive or heavily used vehicle.

Parking and tolls for business trips are deductible under both methods.

What it costs, or where the catch is

No log means no deduction, and the log is the first thing asked for on audit.

Choosing actual expenses in year one locks out the standard rate for that car.

Selling a depreciated vehicle can create ordinary income the owner did not expect.

A worked example

Hana is a home health aide who drove 9,000 miles for work last year. Under the standard rate she multiplies those miles by the rate for the year and adds $240 of parking. Her neighbor Boris chose the actual method on a truck used 80 percent for his landscaping business, deducting $9,600 of costs plus depreciation, and when he sells the truck for $18,000 against a basis of $11,000 after depreciation, the $7,000 gain is taxed as ordinary income.

Where it goes wrong

The common miss is reconstructing a mileage log from memory at tax time, which rarely survives an audit, or forgetting that commuting miles never count.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS Publication 463, Travel, Gift, and Car Expenses. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.