Writing off car payments for an LLC doesn’t work the way most owners expect. The monthly payment itself isn’t a deductible expense, because the principal portion is buying you an asset rather than paying for a service. What your LLC can deduct is the interest on the loan, the depreciation on the vehicle spread across several years, and either your actual operating costs or a flat per-mile rate. How much of that adds up in any given year depends on how heavily you use the vehicle for business and whether it weighs more or less than 6,000 pounds.
Why the Payment Itself Isn’t the Deduction
A monthly car payment has two parts. The principal repays your loan balance, which the IRS treats as converting cash into an asset you own. That’s not an expense. You recover the purchase price through depreciation deductions over the vehicle’s useful life instead. The interest portion is different: it’s a cost of borrowing, and the business-use share of it is deductible in the year you pay it.
Leasing changes the picture. Because you never own a leased vehicle, there’s nothing to depreciate. Instead, the business-use share of each lease payment is deductible as a rent expense. Both paths get you to a deduction; neither one lets you write off the “car payment” as a single line item.
The Two Methods for Deducting Vehicle Costs
An LLC can calculate its vehicle deduction one of two ways each year, and the choice you make in the vehicle’s first year of business use has consequences that last as long as you own it.
Standard Mileage Rate
The standard mileage rate for 2026 is $0.725 per business mile.1Internal Revenue Service. 2026 Standard Mileage Rates Multiply the rate by your business miles and that’s your deduction. The rate is meant to cover depreciation, insurance, fuel, maintenance, and repairs in a single number. Parking and tolls on business trips are deductible on top of it.
There’s a catch that trips people up. You have to elect the standard mileage rate in the first year you use the vehicle for business.2Internal Revenue Service. Topic No. 510, Business Use of Car Pick actual expenses in year one and the standard rate is off the table for that vehicle for good. You can move from standard mileage to actual expenses later, but not the reverse. The rate also carries a built-in depreciation component of $0.26 per mile for 2026, and that reduces the vehicle’s basis over time, which matters when you sell it.
Actual Expense Method
The actual expense method deducts a business-use percentage of everything you spend to run the vehicle: fuel, oil, tires, repairs, insurance, registration, loan interest, and depreciation. At year-end you total your costs, divide business miles by total miles to get your business-use percentage, and deduct that share.
Owners of expensive vehicles or those with high operating costs usually come out ahead this way. A $60,000 SUV driven 8,000 business miles produces only $5,800 under the standard rate; the actual expense method can produce considerably more once depreciation and insurance are counted. The tradeoff is receipts for everything.
Depreciation Limits on Vehicles Under 6,000 Pounds
When your LLC buys a vehicle, the purchase price is recovered under the Modified Accelerated Cost Recovery System (MACRS).2Internal Revenue Service. Topic No. 510, Business Use of Car Two accelerated options — the Section 179 deduction and bonus depreciation — can front-load a much bigger deduction into year one. Both require the vehicle to be used more than 50% for business in the year it’s placed in service.3Internal Revenue Service. Publication 946 – How To Depreciate Property If business use later drops to 50% or below, you have to recapture the extra depreciation you already claimed and report it as ordinary income.4eCFR. 26 CFR 1.280F-3T – Limitations on Recovery Deductions and the Investment Tax Credit
Most cars, small crossovers, and lighter SUVs come in under 6,000 pounds gross vehicle weight rating. These are “passenger automobiles” under Section 280F, and the statute caps annual depreciation regardless of what the vehicle actually cost.5Office of the Law Revision Counsel. 26 U.S. Code 280F – Limitation on Depreciation for Luxury Automobiles The label “luxury auto limits” is misleading; the caps hit a $30,000 sedan the same way they hit a $90,000 sports car.
For a passenger vehicle placed in service in 2026 with bonus depreciation, the first-year cap is $20,300, with lower amounts allowed in years two, three, and beyond.6Internal Revenue Service. Revenue Procedure 2026-15 Opt out of bonus depreciation and the first-year cap drops to $12,300. Every cap is then reduced by your personal-use percentage, so a vehicle used 70% for business claims 70% of the cap.
Heavy Vehicles Over 6,000 Pounds
Vehicles with a GVWR above 6,000 pounds sit outside the Section 280F passenger auto caps, which is why full-size SUVs, pickups, and cargo vans are so popular with business owners. Two subgroups matter:
- Heavy SUVs over 6,000 pounds but under 14,000 pounds GVWR have their Section 179 deduction capped at $32,000 for 2026. Bonus depreciation, however, has no such cap, so anything above $32,000 can be written off through bonus depreciation in the same year.
- Heavy trucks, vans, and vehicles with a cargo bed at least six feet long aren’t subject to the $32,000 SUV cap and can use the full Section 179 deduction up to the overall $2,560,000 limit for 2026.
The One, Big, Beautiful Bill permanently restored 100% bonus depreciation for qualified property acquired after January 19, 2025, reversing the phasedown that had cut it to 60% in 2024 and 40% in 2025.7Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill For a 2026 heavy vehicle used 100% for business, this can mean expensing the entire purchase in year one. A $75,000 heavy-duty pickup can generate a $75,000 first-year deduction. A passenger car capped at $20,300 cannot. If you’d rather spread deductions across years — say you expect a higher tax bracket ahead — you can elect out of bonus depreciation.
Leasing Instead of Buying
A lease skips depreciation entirely. Your LLC deducts the business-use share of each lease payment as a rent expense. If the payment is $600 and business use is 80%, the deduction is $480 a month. Any upfront payment or capitalized cost reduction has to be spread evenly across the lease term rather than deducted at signing. Refundable security deposits aren’t deductible at all.
To keep leasing from becoming a workaround on the passenger auto caps, the IRS uses a lease inclusion rule. If a passenger vehicle’s fair market value at the start of the lease exceeds $62,000, you add a small amount back to taxable income each year of the lease.6Internal Revenue Service. Revenue Procedure 2026-15 The inclusion amounts are modest, but they narrow the gap between leasing and buying an expensive vehicle. The IRS publishes updated tables each year in the same revenue procedure that sets the depreciation caps.
Which Miles Actually Count
None of the deduction methods matter if the miles you’re counting aren’t deductible in the first place. The IRS draws a hard line between commuting and business driving. Trips between your home and a regular workplace are commuting, and commuting is never deductible.8Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses Taking business calls on the drive doesn’t change that.
Deductible business miles include driving from your office to a client, traveling between two work sites, running business errands, and trips to the bank or post office for the business. If you have a qualifying home office as your principal place of business, trips from home to client sites count as business miles rather than commuting. An LLC owner who works from home and drives to clients all day has far more deductible mileage than one who commutes to a fixed office and makes the same client visits from there.
What Happens When You Sell the Vehicle
The deduction story doesn’t end when you drive the vehicle off your books. When your LLC sells, trades in, or otherwise disposes of a business vehicle, any gain attributable to depreciation you previously claimed is taxed as ordinary income rather than at capital gains rates.9Internal Revenue Service. Publication 544 – Sales and Other Dispositions of Assets This is depreciation recapture, and it applies to every kind of depreciation you took — regular MACRS, Section 179, and bonus depreciation. The recapture amount is the lesser of your actual gain or the total depreciation claimed. The sale is reported on Form 4797.10Internal Revenue Service. About Form 4797, Sales of Business Property
This matters most for owners who take aggressive first-year deductions on heavy vehicles. Writing off $75,000 in year one feels great until you sell three years later and owe ordinary income tax on most of the sale price. The deduction is a timing benefit that shifts when you pay tax, not whether you pay it.
Records the IRS Expects
No vehicle deduction survives an audit without contemporaneous records, meaning trips logged and receipts kept at or near the time they happen.8Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses Reconstructing a mileage log the night before you file is the classic way to lose the deduction.
Each business trip needs the date, starting point and destination, business purpose, and miles driven, plus odometer readings at the start and end of the year. GPS-based mileage apps satisfy the rules and are more reliable than a paper notebook. If you use the actual expense method, keep receipts for fuel, repairs, insurance, registration, and the interest portion of your loan statements. The burden of proof is entirely on the taxpayer, and inadequate records don’t just trim a deduction — they can wipe it out and trigger accuracy-related penalties.11Internal Revenue Service. About Form 4562, Depreciation and Amortization Keep business and personal mileage in separate logs from the first day you put a vehicle into service; sorting them out later is where most cases fall apart.