If you use your car in your job or business and you use it only for that purpose, you
may deduct its entire cost of operation. However, if you use the car for both business and
personal purposes, you may deduct only the cost of its business use. If you lease a car
for use in your job or business, please get Publication 463, Travel,
Entertainment, Gift, and Car Expenses, for special rules regarding leased vehicles.
The following rules apply only if you own the car you use in your job or business. You
can generally figure your business use of car expense one of two ways: the standard
mileage rate method or the actual expense method. For 1997, the standard mileage rate is
31.5 cents a mile for all business miles. If you use the standard mileage rate, add any
parking fees and tolls incurred for business purposes. If you qualify to use both methods,
figure the deduction both ways to see which gives you a larger deduction.
To use the standard mileage rate, you must own the car; the car must not be used for
hire, for example as a taxi; you must not operate two or more cars at the same time, as in
a fleet operation; and you must not have claimed a deduction that included accelerated
depreciation on the car in an earlier year.
Further, to use the standard mileage rate, you must choose to use it in the first year
you place the car in service in your business. Then, in later years, you can choose to use
the standard mileage rate or actual expenses. If you use the standard mileage rate in the
first year, and change to the actual expense method in a later year, you must use
straight-line depreciation over the estimated useful life of the car. You may not use an
accelerated depreciation method.
To use the actual expense method of figuring the deduction for business use of a car,
you must determine what it actually cost you to operate the car. Include gas, oil,
repairs, tires, insurance, licenses, garage rent, parking fees, tolls, and depreciation.
Generally, the Modified Accelerated Cost Recovery System is used to depreciate any car
placed in service after 1986 and there are limits on how much you can deduct. For cars
first placed in service in 1997, the maximum depreciation that you can claim for 1997 is
$3,160. For 1998, the maximum depreciation for that car is $5,000, for 1999 it is $3,050,
and for each succeeding year it is $1,775. These maximum amounts are different for cars
placed in service before 1997. Also, the maximum depreciation amount is less if you use
the car less than 100% for business. Publication 463 explains the
depreciation deduction for a car, including the limits.
The law requires that you substantiate your expenses by adequate records or by enough
evidence to support your own statement. For further information on record keeping, see Topic 305.
If you are an employee whose business expenses are fully reimbursed under an
accountable plan, the reimbursement should not be included in your wages on your Form W-2, so you do not deduct the expenses.
Your employee business expenses are treated as if they are not reimbursed if your
employer uses a non-accountable plan to reimburse you for the expenses. Your employer will
combine the amount of any reimbursement or other expense allowance paid to you under a
non-accountable plan with your wages, salary, or other compensation and report the total
on your Form W-2. For a definition of Accountable and Non-Accountable plans please refer
to Publication 463.
If you are an employee, you must complete Form
2106 or 2106EZ and itemize your
deductions on Schedule A, Form 1040, to deduct your car expenses.
Your expenses will be subject to the 2% of adjusted gross income limit. See Topic 508 for information on the 2% limit. If you are self-employed,
car expenses are deductible on Schedule C or C-EZ, Form 1040, or on Schedule F, Form 1040,
if you are a farmer.
For more information, order Publication 463 by calling
Tax Topics & FAQs | Tax Help Archives | Home