Businesses can deduct vehicle expenses. There are two ways to take expenses: the standard mileage rate or the actual expenses. The standard mileage rate for 2020 is 57.5¢ per business mile. Actual expenses are the expenses you incur using the vehicle for business purposes. You must choose one or the other, you cannot take both. If you choose the standard mileage rate, you must do so in the year the vehicle is first used for business.
If you take actual expenses, you can depreciate the car. Generally, the car is a capital asset, the deduction for which must be taken over the class life of the asset.
Actual expenses include depreciation, lease payments, registration fees, licenses, insurance, repairs, gas, garage rent, tires, oil, parking fees and tolls.
If you elect to take standard mileage, you cannot deduct depreciation, lease payments, maintenance and repairs, gasoline, oil, insurance and registration fees. If you use the car less than 100% for business, you must keep contemporaneous records of your vehicle use.
You may use §179 depreciation to recover some of the cost of a newly purchased vehicle if you use the vehicle for business purposes more than 50% of the time. Depreciation for vehicles is subject to the same limitations as other assets. You may also claim the bonus depreciation for a vehicle. If the vehicle was purchased after Sept. 27, 2017, you can claim up to 100% of the basis of the car. In addition to bonus depreciation, the taxpayer may choose to depreciate the car under one of the methods discussed previously. However, these deductions are limited.
The maximum depreciation deduction for passenger automobiles acquired after Sept. 27, 2017, and placed into service during 2018 or later are shown in the chart below.
The depreciation deduction limits for 2020 were not yet released at the time of writing. They are expected to come out this summer. I can help you compare your options for a car used in your business.
Date Placed in Service________1st Year______2nd Year______3rd Year______4th Year +
2019__________________________$18,100______$16,100________$9,700________$5,760
2018__________________________$18,000______$16,000________$9,600________$5,760