How to Deduct a Vehicle Used for Work
Employees who use their personal vehicles for company travel and daily work requirements may be able to use the mileage and car expenses incurred as a deduction on their income tax. The IRS asks anyone claiming this deduction to keep records of vehicle mileage and expenses as evidence of the deduction. Employees wishing to take the vehicle deduction will need to itemize their expenses on Schedule A and fill in Form 2106 to complete the deduction process.
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Instructions
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Preparation
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1
Know what qualifies as "work use" of a vehicle. Employees who are reimbursed by their employer for use of their car are not eligible for the vehicle deduction. Certain types of travel may not qualify for the deduction such as commuting from home to work. IRS Publication 463 titled "Travel, Entertainment, Gift, and Car Expenses" outlines what constitutes the work use of a vehicle.
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Use the vehicle for work the first year it is available for you to use. The IRS only allows a personal vehicle to be used for a deduction if it is used for work from the beginning of its availability. For instance, if you have two cars and you only drive one for work, the day or days you may need to use the second car may not qualify for the IRS vehicle deduction if you did not use it for work the first year it was available to you. Keeping mileage records for both cars will be necessary to claim both vehicles in the deduction.
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Maintain a log of your vehicle mileage and expenses used for work. A notebook kept in the glove box or records kept on a cell phone work fine. Downloading them or transferring them to a computer spreadsheet will help you run totals and print a copy for your tax records. Record the starting and ending mileage for the year, each date the vehicle was used for work, the starting and ending mileage from the odometer each time the car is driven for work, the reason for the work use and any expenses you incurred during that time frame (parking fees, toll payments).
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Keep track of all vehicle expenses throughout the year such as oil changes, fuel, repairs and tire replacement. A percentage of the total of these expenses will be figured during the tax deduction process.
Taking the Deduction
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Figure the percentage of work use for the year. Total the overall mileage for the year and total the work mileage. Divide the work mileage by the overall mileage to arrive at the percent of work use. For instance, if your overall mileage for the year was 25,000 and your work mileage for the year was 5,000, you have used your vehicle for work 20 percent of the year.
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Complete IRS Form 2106 to figure the deduction expense. Form 2106 requests figures for work mileage, total mileage and asks questions about the vehicle or vehicles you are using for work. You will need to choose between the standard mileage rate or actual expenses to figure your deduction.
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Figure your deduction using the standard mileage rate. Under the section marked "Standard Mileage Rate" you will be asked to multiply your business mileage by the standard rate. Standard mileage rates may vary from year to year. In 2010, the standard rate was 50 cents per mile.
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Figure your deduction using actual expenses. Actual expenses require you to figure the depreciation of the vehicle if you own it or include the total lease payments. You will be asked to total actual repair and vehicle expenses and enter this information on Form 2106. Once you arrive at a total for actual expenses you will multiply it by the "work percentage" (20 percent in our example) to arrive at the actual expense deduction.
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Itemize your deductions on IRS Schedule A. No matter which way you have chosen to figure your deduction, you must enter certain information from Form 2106 on Schedule A to complete the deduction process.
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Tips & Warnings
IRS Publication 463 and Topic 704, available for viewing on the IRS website, explain vehicle depreciation and depreciation limits. Rural mail carriers who receive a reimbursement from their employer cannot use the standard mileage rate to figure vehicle expenses that were not reimbursed. See the instructions for Form 2106 for information on rural mail carriers and the vehicle deduction.
