Chapter 43

Deducting Car and Truck Expenses

The costs of buying and operating a car, truck, or van for business are deductible under rules hedged with restrictions. Depreciation deductions for most cars, trucks, and vans are subject to annual ceilings. For new cars placed in service in 2012 that are used over 50% for business, the first-year depreciation limit is $11,160, the regular $3,160 limit plus a bonus allowance of $8,000 (43.4). For most new light trucks and vans, the 2012 limit is $11,360 if the $8,000 bonus is allowed or $3,360 if it is not (43.4). The limits are reduced for personal use. If a vehicle placed in service in 2012 is used 50% or less for business, depreciation must be based on the straight-line method and the maximum deduction is reduced by personal use (43.4).

To avoid accounting for actual vehicle expenses and depreciation, you may claim an IRS mileage allowance. The allowance is 55.5¢ per mile. Keep a record of business trip mileage.

If you are self-employed, you deduct your vehicle expenses on Schedule C or Schedule C-EZ if eligible (40.6). Use Form 4562 to compute depreciation if you claim actual operating costs instead of the IRS mileage allowance. If you are an employee, use Form 2106 to claim unreimbursed vehicle expenses, which are deductible only to the extent that together with other miscellaneous itemized deductions they exceed 2% of your adjusted gross income.

If you bought an electric vehicle in 2012 for business and/or personal use, you may be eligible for a tax credit (25.22).

43.1 Standard Mileage Rate

43.2 Expense Allocations

43.3 Depreciation Restrictions on Cars, Trucks, and Vans

43.4 Annual Ceilings on Depreciation

43.5 MACRS Rates for Cars, Trucks, and Vans

43.6 Straight-Line Method

43.7 Depreciation for Year Vehicle Is Disposed Of

43.8 Depreciation After Recovery Period Ends

43.9 Trade-in of Business Vehicle

43.10 Recapture of Deductions on Business Car, Truck, or Van

43.11 Keeping Records of Business Use

43.12 Leased Business Vehicles: Deductions and Income

Also see:

25.20 Credits for Fuel Cell Vehicles and Plug-in Electric Vehicles