You can write off a car lease for business use, and for 2026 the IRS gives you two ways to do it: deduct 72.5 cents for every business mile you drive, or deduct the business-use percentage of your actual lease payments and operating costs.1Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile Which one produces a bigger deduction depends on the vehicle, how much you drive, and one adjustment the IRS applies to higher-value leases.
What Counts as Business Driving
Only the business share of your driving is deductible. You calculate a business-use percentage by dividing business miles by total miles for the year. Drive 18,000 miles total with 12,000 for work, and your business use is 67%.
Commuting from home to a regular workplace is personal, no matter the distance. Trips to clients, between two work locations, to make deliveries, or to see suppliers do count. A few situations expand what’s deductible: if you have a qualifying home office that serves as your principal place of business, drives from home to other work locations qualify; trips to a temporary work location expected to last a year or less qualify even if you also have a regular office; and travel between two job sites in the same day is deductible regardless of employer.2Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses
Standard Mileage Rate or Actual Expenses
The standard mileage rate is the simpler path. Multiply your business miles by 72.5 cents. Fifteen thousand business miles gives you a $10,875 deduction, and that single figure is meant to cover lease payments, fuel, insurance, maintenance, and repairs together. You cannot layer any of those costs on top of the mileage figure.
The actual expense method takes more work and often produces a larger deduction for expensive vehicles or high operating costs. You add up everything you spent on the vehicle during the year and multiply by your business-use percentage. Eligible costs include:
- Lease payments, treated as a business rental expense3Office of the Law Revision Counsel. 26 U.S. Code 162 – Trade or Business Expenses
- Fuel, oil changes, tire work, and repairs
- Insurance premiums, registration, and license fees
- Tolls and parking on business trips
Say your lease payments run $7,200 for the year and you spend another $4,800 on gas, insurance, maintenance, and registration. That’s $12,000 in vehicle costs; at 75% business use, your deduction before any lease inclusion adjustment is $9,000.
Here’s the part specific to leasing: the choice locks in. If you use the standard mileage rate in the first year you use the leased vehicle for business, you must use it for the entire lease, including any renewals.1Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile If you start with actual expenses, you can’t switch to mileage later.4Internal Revenue Service. Topic No. 510, Business Use of Car Run both calculations before you file your first return with the vehicle, because you don’t get a second chance.
The Lease Inclusion Amount on Higher-Value Cars
The IRS doesn’t want leasing used to sidestep the depreciation caps that apply to purchased luxury cars. So any leased passenger vehicle with a fair market value over $62,000 at the start of the lease triggers an income inclusion amount that shrinks your deduction.5Internal Revenue Service. Revenue Procedure 2026-15
Each year of the lease, you look up the vehicle’s initial fair market value in the IRS table for the year the lease began, find the dollar amount for that lease year, and subtract it from your deduction. For a vehicle first leased in 2026 with a fair market value between $80,000 and $85,000, the inclusion amount is $112 in year one, $244 in year two, and $360 in year three.5Internal Revenue Service. Revenue Procedure 2026-15 The amounts grow modestly each year and are prorated by business use.
Near the $62,000 threshold, the inclusion is minor. On a car valued between $62,000 and $64,000, the first-year inclusion is only $8. On a $200,000 vehicle, the first-year figure climbs to $766 and reaches $3,445 by year five. The IRS says the inclusion can apply under both the actual expense method and the standard mileage rate, though in practice it bites hardest when you’re deducting actual lease payments.6Internal Revenue Service. Income and Expenses 5
The 6,000-Pound Exception
The lease inclusion rule and the luxury auto rules only apply to vehicles that meet the tax code’s definition of a “passenger automobile.” That means a four-wheeled vehicle built for public roads and rated at 6,000 pounds unloaded gross vehicle weight or less. Trucks and vans use gross vehicle weight instead of unloaded weight.7Office of the Law Revision Counsel. 26 USC 280F – Limitation on Depreciation for Luxury Automobiles
A vehicle over 6,000 pounds GVWR falls outside that definition entirely. No lease inclusion. Many full-size SUVs, pickup trucks, and cargo vans clear this line, which is why business owners often steer toward them. The rating that matters is the manufacturer’s GVWR on the door sticker, not what the vehicle weighs empty on a scale. A vehicle rated at 5,900 pounds gets the full passenger-automobile treatment; one rated at 6,100 pounds avoids it.
Leasing Rules Out Section 179 and Bonus Depreciation
You can’t claim Section 179 expensing or bonus depreciation on a leased vehicle. Those accelerated write-offs require you to be the tax owner of the property, and when you lease, the leasing company owns the vehicle. Your deduction is limited to the mileage rate or your actual expenses, including the lease payment itself.7Office of the Law Revision Counsel. 26 USC 280F – Limitation on Depreciation for Luxury Automobiles
This gap matters most for heavy vehicles. Buying a qualifying SUV over 6,000 pounds GVWR lets a business owner expense a large portion of the purchase price in year one. Leasing the same SUV spreads the deduction across the lease term through the payments. If your goal is the largest possible first-year write-off, buying often wins the tax comparison.
Also worth knowing before you sign a lease in 2026: the commercial clean vehicle credit under IRC Section 45W is no longer available for vehicles acquired after September 30, 2025.8Internal Revenue Service. Commercial Clean Vehicle Credit
Records the IRS Expects
Passenger automobiles are classified as “listed property,” which means vehicle deductions are held to a stricter documentation standard than most business expenses. Reconstructing a mileage log from memory at year-end is the classic way deductions get thrown out. The IRS wants contemporaneous records: you log trips as they happen.
For each business trip, capture the date, destination, business purpose, and miles driven. Record total mileage for the year as well, since that’s how the IRS verifies your business-use percentage. Odometer readings aren’t required for every trip, but you do need them at the start and end of the year and whenever you begin using a new vehicle. Digital tracking apps are accepted as long as the records are accurate and backed up; GPS-based trackers that log automatically are useful because they take the temptation to catch up later off the table.
If you’re using actual expenses, keep every lease statement, fuel receipt, repair invoice, insurance notice, and registration document. A missing category here or there is usually survivable. A pattern of missing records across categories can sink the entire deduction.
Where the Deduction Goes on Your Return
Sole proprietors and single-member LLCs report vehicle expenses on Schedule C.4Internal Revenue Service. Topic No. 510, Business Use of Car If you use actual expenses or need to report business use of listed property, you also complete Part V of Form 4562.9Internal Revenue Service. About Form 4562, Depreciation and Amortization Farmers file Schedule F instead.
Partnerships and S-corporations deduct vehicle expenses on the entity’s return when the business holds the lease. If a partner or shareholder leases the vehicle personally and uses it for business, the deduction is generally handled either as an unreimbursed partner expense or through an accountable reimbursement plan, depending on how the entity is structured.
W-2 employees can’t claim this deduction. The Tax Cuts and Jobs Act suspended the miscellaneous itemized deduction for unreimbursed employee expenses through 2025, and that suspension has been extended. If your employer provides a leased vehicle you also drive personally, the personal-use portion becomes a taxable fringe benefit added to your wages, and the business can’t deduct that portion either.