How to Buy a Car for Your Business and Write It Off

To buy a car for your business and write it off, you title the vehicle in the entity’s name using its EIN and formation documents, cover it under a commercial auto policy, and then claim the cost on the business’s tax return through Section 179 expensing, bonus depreciation, or standard depreciation — with how much you can deduct in year one depending on the vehicle’s gross weight and the percentage of business use.

Put the Vehicle in the Business’s Name

The write-off only works if the business, not you personally, is the buyer on the paperwork. Dealers know this and will ask for three things before they’ll sell to an entity: proof the entity exists, its federal tax ID, and evidence that the person signing has authority to bind it.

Get an EIN

Every business needs a federal Employer Identification Number to complete a vehicle purchase. Federal tax law requires any entity filing returns to include an identifying number, and for a business that number is the EIN.1Office of the Law Revision Counsel. 26 USC 6109 – Identifying Numbers You can apply directly through the IRS at no cost. The application asks for the name and taxpayer ID of a responsible party who controls the entity.

Bring Formation Documents and a Certificate of Good Standing

The dealer will want your Articles of Incorporation (corporation) or Articles of Organization (LLC) filed with your state’s Secretary of State. Many dealers and lenders also ask for a Certificate of Good Standing, sometimes called a Certificate of Existence or Certificate of Fact, confirming the entity has not been dissolved or suspended.2Defense Logistics Agency. 50 States – Examples of Proof of Business Order a fresh certificate before you shop; some dealers require one issued within the last 60 days.

Show Authority to Sign

Whoever walks into the dealership needs written proof the business has authorized them to buy. A corporate resolution — a formal action by the board or LLC members naming the individual who can sign — is the standard document. If your company doesn’t have one, an incumbency certificate identifying current officers and their roles can work instead. Sign the contract in your capacity, not personally: “Jane Smith, President of XYZ Corp.” The buyer on the sales contract should match the entity’s full legal name exactly.

Insure It Commercially

A vehicle owned by an entity generally can’t sit on a personal auto policy. You’ll need a commercial policy, which carries higher liability limits, typically starting at $500,000 or $1,000,000. The insurer will ask for the VIN, a list of authorized drivers with driving records, how the vehicle will be used, and the geographic area where it will operate.

How the Tax Write-Off Actually Works

Two federal provisions let a business deduct most or all of a vehicle’s cost in the first year rather than spreading it over several years: Section 179 expensing and bonus depreciation. Both require that the vehicle be used more than 50% for business. And the vehicle’s gross vehicle weight rating (GVWR), printed on a sticker inside the driver’s door jamb, determines how far you can push the deduction.

Section 179 Expensing

Section 179 lets you deduct the cost of qualifying business property in the year you place it in service. For tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000, phasing out dollar-for-dollar once qualifying property placed in service during the year exceeds $4,090,000.3Internal Revenue Service. Revenue Procedure 2025-32 How that plays out for a vehicle depends on weight:

  • Heavy trucks and cargo vans over 6,000 lbs GVWR that aren’t designed primarily to carry passengers can qualify for the full Section 179 deduction up to the annual limit. You could write off the entire purchase price in year one.4Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
  • Heavy SUVs over 6,000 lbs but no more than 14,000 lbs GVWR that are designed primarily to carry passengers are capped at $32,000 of Section 179 for 2026. The rest can still be depreciated over time.3Internal Revenue Service. Revenue Procedure 2025-32
  • Passenger vehicles at 6,000 lbs GVWR or below fall under separate annual caps described below, which limit the first-year deduction regardless of Section 179.

Bonus Depreciation

On top of Section 179, federal law offers first-year bonus depreciation for qualifying property. Under the One, Big, Beautiful Bill Act signed in 2025, businesses can deduct 100% of the cost of qualifying property acquired and placed in service after January 19, 2025.5Internal Revenue Service. One, Big, Beautiful Bill Provisions The 100% rate applies to most new and used business vehicles purchased in 2026, as long as the vehicle is new to your business.6Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System

For heavy vehicles over 6,000 lbs GVWR, bonus depreciation can work alongside or instead of Section 179 to zero out the cost in year one. For passenger vehicles at or below 6,000 lbs, the annual caps still apply.

The Cap on Passenger Vehicles

Federal law limits how much depreciation you can claim each year on a passenger automobile, generally any vehicle rated at 6,000 lbs GVWR or less.7Office of the Law Revision Counsel. 26 USC 280F – Limitation on Depreciation for Luxury Automobiles The IRS adjusts the caps annually. For vehicles placed in service in 2025 (the most recently published set), the limits are:8Internal Revenue Service. Revenue Procedure 2025-16

  • Year 1 with bonus depreciation: $20,200
  • Year 1 without bonus depreciation: $12,200
  • Year 2: $19,600
  • Year 3: $11,800
  • Each year after: $7,060 until the vehicle is fully depreciated

The 2026 figures will be slightly higher for inflation but had not yet been released at the time of writing. Even with the caps, a $60,000 sedan used 100% for business can be fully depreciated over roughly six to seven years.

Reporting the Deduction

You claim Section 179 and depreciation on IRS Form 4562, filed with your business tax return for the year the vehicle is placed in service.9Internal Revenue Service. Instructions for Form 4562 All passenger vehicles are listed property, so you must also complete Part V of Form 4562 to report business versus personal use. If business use drops to 50% or below in a later year, you may have to recapture part of the Section 179 deduction as income on Form 4797.

Choosing How to Deduct Operating Costs

Separate from the purchase-price deduction, you also deduct what it costs to run the vehicle. Two methods are available, and the choice you make in year one has lasting consequences.

The IRS standard mileage rate for business use in 2026 is 72.5 cents per mile.10Internal Revenue Service. 2026 Standard Mileage Rates Multiply that rate by business miles for the year. If you use it, you can’t also deduct depreciation, fuel, insurance, repairs, or lease payments separately, though business-related parking and tolls are still deductible on top.11Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses

The actual expense method deducts the business-use portion of every operating cost: fuel, insurance, repairs, registration, and depreciation or lease payments. You split expenses by the ratio of business to total miles. For expensive vehicles with heavy business use it usually produces the larger deduction, but the recordkeeping is heavier too.

Timing matters. If you want to use the standard mileage rate for a vehicle you own, choose it the first year the vehicle is available for business use. You can switch to actual expenses later, but if you claimed Section 179, bonus depreciation, or MACRS depreciation in that first year, you’re locked into actual expenses for the life of the vehicle.11Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses

What Changes If You Lease

Leasing shifts the tax picture. You deduct the business-use portion of lease payments as an operating expense instead of claiming depreciation. Section 179 and bonus depreciation are off the table because you don’t own the vehicle. If you pick the standard mileage rate on a leased vehicle, you must stay with it for the entire lease. And when a leased vehicle’s fair market value exceeds an IRS threshold (for vehicles first leased in 2025, $62,000), you have to reduce the lease deduction by an “income inclusion” amount from IRS tables, which prevents leasing around the passenger-vehicle caps.

Personal Use Will Eat Into the Deduction

If you or an employee drives a company vehicle for anything other than business, that use has tax consequences. The IRS treats personal use of an employer-provided vehicle as a taxable fringe benefit that must be included in the employee’s wages.12Internal Revenue Service. Publication 15-B – Employer’s Tax Guide to Fringe Benefits Commuting counts as personal use, no matter the distance.

The value of personal use is calculated using one of the IRS-approved methods and reported on the employee’s Form W-2 by January 31 of the following year. Three methods are common:

  • Cents-per-mile rule: multiply the standard mileage rate by personal miles driven. Available when the vehicle is regularly used in the business or driven at least 10,000 miles a year.
  • Commuting rule: value each one-way commute at $1.50. Available only if the employer requires the employee to commute in the vehicle for a legitimate business reason, has a written policy prohibiting other personal use, and the employee is not a control employee (generally an officer earning above $145,000 or a director in 2026).12Internal Revenue Service. Publication 15-B – Employer’s Tax Guide to Fringe Benefits
  • Lease value rule: look up the vehicle’s fair market value in IRS Table 3-1 for an annual lease value, then multiply by the personal-use percentage. For vehicles worth $60,000 or more, the annual lease value equals 25% of fair market value plus $500.

Failure to track and report personal use exposes both the employer and the employee to penalties. It can also collapse the business-use percentage you rely on for depreciation. If business use falls to 50% or below, you lose Section 179 eligibility and may have to recapture prior deductions.9Internal Revenue Service. Instructions for Form 4562

Records That Protect the Deduction

Any vehicle deduction has to be substantiated. The IRS expects a contemporaneous log, meaning you record trips at or near the time they happen rather than reconstructing them from memory months later.13Internal Revenue Service. Topic No. 510 – Business Use of Car Each entry should have the date, destination, business purpose, and miles driven. If you use the actual expense method, keep receipts for fuel, repairs, insurance, and other costs.11Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses

Smartphone apps that log trips by GPS meet the standard as long as they capture the required details. Without adequate records, the IRS can disallow the entire vehicle deduction on audit, and what was supposed to be a five- or six-figure tax benefit becomes an adjustment plus penalties and interest.