Can a Sole Proprietor Write Off a Vehicle? Mileage vs. Depreciation

A sole proprietor can write off a vehicle used for business by deducting the business-use portion of its costs on Schedule C. You have two methods to choose from: the IRS standard mileage rate, which is 72.5 cents per business mile for 2026,¹ or the actual expense method, which deducts the business share of fuel, insurance, repairs, depreciation, and other operating costs. Either way, the deduction hinges on how many of your miles genuinely qualify as business driving, and the IRS expects records to prove it.

Which Miles Count as Business Miles

Business driving includes trips to meet clients, travel between job sites, runs for supplies, and deliveries. If you have a qualifying home office that serves as your principal place of business, driving from that office to a temporary work location also counts.²

Commuting does not. Driving between your home and a regular workplace is a personal expense no matter how far the trip or whether you take business calls along the way.² The share of total miles that qualifies as business use is the foundation of every calculation that follows. If 75 percent of your annual miles are for business, you can deduct 75 percent of your actual costs, or multiply 75 percent of your miles by the standard rate.

Standard Mileage Rate vs. Actual Expenses

The standard mileage rate is a single number meant to cover fuel, maintenance, insurance, and depreciation together. Multiply business miles by 72.5 cents and report the result. Parking fees and tolls for business trips are deductible on top of that.¹

The simplicity comes with lock-in rules. You cannot use the standard mileage rate if you have already claimed Section 179, bonus depreciation, or MACRS depreciation on the same vehicle. You cannot use it if you run five or more business vehicles at the same time, or if you claimed actual expenses on a leased vehicle after 1997.³ The practical takeaway: if you might ever want the standard mileage rate, start with it in year one. You can switch to actual expenses later, though you will be limited to straight-line depreciation. Starting with actual expenses using any accelerated depreciation method takes the standard mileage rate off the table for that vehicle permanently.

Under the actual expense method, you deduct the business-use percentage of every operating cost. Qualifying items include fuel and oil, repairs and tires, insurance, registration fees and licenses, lease payments on leased vehicles, garage rent, parking fees and tolls, and depreciation on owned vehicles.² If you financed the purchase, the business-use share of auto loan interest is also deductible on Schedule C. Actual expenses tend to produce a larger deduction for expensive or high-maintenance vehicles, but the method demands organized records of every cost throughout the year.

Depreciation, Section 179, and Bonus Depreciation

When you own the vehicle and use the actual expense method, depreciation is usually the biggest piece of the write-off. Vehicles are depreciated under MACRS, typically over a five-year recovery period.⁴ Two accelerated options can front-load the deduction.

Section 179 lets you deduct the full purchase price of qualifying property in the year you place it in service. The overall 2026 Section 179 limit is $2,560,000, phasing out dollar-for-dollar once total qualifying property exceeds $4,090,000.⁵ The Section 179 deduction cannot exceed your net business income for the year.

Bonus depreciation lets you write off a percentage of the cost on top of or instead of Section 179. Under the One Big Beautiful Bill Act, qualified property acquired after January 19, 2025, is eligible for 100-percent bonus depreciation on a permanent basis.⁶ Both Section 179 and bonus depreciation are claimed on Form 4562.

The 50-Percent Business Use Threshold

Vehicles are listed property, which brings a stricter test than most business assets. Business use must exceed 50 percent in the year the vehicle is placed in service to claim Section 179 or bonus depreciation. Fall below that mark and you are limited to straight-line depreciation over a longer recovery period. The rule keeps going: if business use drops to 50 percent or below in any later year during the recovery period, you must recapture the difference between the accelerated depreciation you claimed and what straight-line would have produced, adding it back to income.⁴

Passenger Vehicle Caps and the Heavy Vehicle Exception

The IRS caps annual depreciation on passenger vehicles, defined as four-wheeled vehicles rated at 6,000 pounds gross vehicle weight or less. For a passenger vehicle placed in service in 2026, the first-year cap is $20,300 with bonus depreciation and $12,300 without.⁷ These limits apply regardless of what the vehicle actually cost. A $90,000 sedan gets the same first-year cap as a $35,000 compact.

Vehicles rated above 6,000 pounds GVWR escape the passenger caps, which is why heavy SUVs and pickups get so much attention in tax planning. Heavy SUVs between 6,000 and 14,000 pounds still face a special Section 179 cap of $32,000 for 2026,⁵ but they can also claim 100-percent bonus depreciation on the remaining cost, which effectively allows the entire business-use portion to be written off in year one.

Certain heavy vehicles avoid even the $32,000 SUV cap if they meet specific design criteria: seating for more than nine passengers behind the driver’s seat, a cargo bed at least six feet long that is separate from the passenger compartment, or a fully enclosed driver and cargo area with no rear seating and no body section extending more than 30 inches ahead of the windshield.² Full-size pickups with a standard-length bed typically meet the cargo-bed test, so their entire cost (times business-use percentage) can qualify for Section 179 up to the full $2,560,000 limit plus bonus depreciation with no SUV cap in the way.

Leased Vehicles

If you lease, you deduct the business-use portion of your lease payments as an operating expense under the actual expense method. You cannot use the standard mileage rate on a leased vehicle if you claimed actual expenses on that lease after 1997.³

Expensive leases carry one catch. To keep lessees from sidestepping the depreciation caps that apply to purchased vehicles, the IRS requires you to add a small inclusion amount to your income each year if the vehicle’s fair market value exceeds a threshold. For leases beginning in 2026, that threshold is $62,000, and the inclusion amount is based on the vehicle’s value at lease start.⁷ Lease a vehicle worth less than $62,000 and the inclusion amount does not apply.

What Happens When You Sell or Stop Using the Vehicle for Business

Depreciation you claim now can return as taxable income later. Sell a business vehicle at a gain and all prior depreciation, including any Section 179 and bonus depreciation, is recaptured as ordinary income under Section 1245. The recapture amount is the lesser of the total depreciation you claimed or the gain on the sale, reported on Form 4797.⁸

The math matters when you are deciding how aggressively to write off the vehicle up front. If you claim $20,300 in first-year depreciation on a $35,000 car and sell it two years later for $25,000, a chunk of that sale price becomes ordinary income because of recapture. The bigger the upfront deduction, the bigger the potential recapture when you sell or convert the vehicle to personal use.

Records That Hold Up in an Audit

No area of sole proprietor compliance gets more people in trouble than vehicle records. The IRS requires a contemporaneous mileage log, meaning entries made at or near the time of each trip, not reconstructed at tax time. Each entry should show the date, destination, business purpose, and starting and ending odometer readings.²

If you use the actual expense method, keep receipts or statements for every deductible cost: fuel, repairs, insurance, loan interest, and anything else you claim. Keep records of the purchase price and the date you started using the vehicle for business, since both feed depreciation.

Weak records risk more than a lost deduction. If the IRS disallows your vehicle expenses in an audit and finds negligence or a substantial understatement, you face a 20-percent accuracy-related penalty on the resulting underpayment, on top of the additional tax and interest.⁹ A mileage-tracking app that logs trips automatically is the simplest defense.

1
Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile, Up 2.5 Cents
2
Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
3
Internal Revenue Service. Topic No. 510, Business Use of Car
4
Internal Revenue Service. Publication 946 (2025), How To Depreciate Property
5
IRS. Rev. Proc. 2025-32
6
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
7
IRS. Rev. Proc. 2026-15
8
Internal Revenue Service. Publication 544 (2025), Sales and Other Dispositions of Assets
9
Internal Revenue Service. Accuracy-Related Penalty