When you use your car for both personal and business reasons and you are not fully reimbursed through your employer for the business expenses, you can deduct those costs from your taxes. How do you go about claiming these deductions? Assuming that you itemize, you have two general paths:
- Standard Mileage Method – The IRS prints flat rates of reimbursement per mile driven for each calendar year. For business use of your vehicle in tax year 2019, the standard mileage rate is 58 cents per mile, up from the 2018 value of 54.5 cents per mile.
- Actual Expense Method – Rather than calculate an average based on miles, you can calculate the actual expenses related to the non-personal use including gas, oil, maintenance costs, depreciation, tolls, parking fees, insurance, and other applicable expenses such as lease payments. IRS Publication 463 covers these in more detail.
If you qualify for both methods, it is worth calculating the total deduction by both methods to see which method works best for you. However, if you use the standard mileage method, you may not also claim actual in the same year. Employees deducting car expenses must fill out either Form 2106 (partial reimbursement from employer). This will give you the value to enter on Schedule A for itemized deductions. Note that these expenses are among those subject to the limit of 2% of adjusted gross income (AGI).
The Tax Cuts and Jobs Act (TCJA) did away with many miscellaneous deductions subject to the 2% AGI cap, including the deduction for unreimbursed employee expenses incurred after tax year 2017. The TCJA also repealed the mileage deduction – except for Armed Forces reservists, fee-basis state or local government officials, and qualified performing artists.
Follow the Instructions for Form 2106 to calculate the actual expenses. Part II of the form discusses allowable and non-allowable actual expenses.
If you lease your vehicle, you are still able to deduct leasing costs, but there may also be an inclusion amount that reduces your lease deduction. IRS Publication 463 gives details on the lease inclusion.
The default method for depreciation calculations is straight-line depreciation. However, if your personal car was used more than 50% for business purposes, you also have a choice between the 200% or 150% declining balance methods. Tables are included in the Form 2106 instructions to illustrate the difference. There are several alternatives for special cases, such as Section 179 depreciation and the special depreciation allowance for the first year of service. Consult Publication 463 for help in determining the best method for your use.
If you are self-employed, deduct your expenses on the appropriate form for your business: Schedule C, or Schedule F for farming.
Form 2106 allows input for up to two personal vehicles used for business purposes. You can add a separate Form 2106 for two more vehicles. Beyond that, you are considered to be operating a fleet and this deduction is not available.
For leased vehicles, if you use the standard mileage rates, you are required to use the standard rates throughout the total life of the lease. You cannot switch to actual expenses in future lease years.
You can also claim a deduction on the use of your personal car for medical purposes, as well as for charitable purposes. For medical expenses, the 2019 rate is 20 cents per mile, up from tax year 2018's 18 cents. Use of your vehicle to serve charitable organizations is still at 14 cents per mile for 2019.
The TCJA eliminated the deduction for expenses on moves taking place after 2017, except for members of the military on active duty who relocate due to a military order. Moving expenses are claimed in a fashion similar to business expenses under IRS Form 3903. However, thanks to the new law, you are now able to claim the portion of medical and dental expenses that exceeds 7.5% of your AGI, down from a floor of 10% in 2017.
For charitable use, see IRS Publication 526 for details. Actual expenses for charitable uses are limited to gas, oil, parking fees, and similar simple expenses. Depreciation, insurance and general maintenance fees are not included. The TCJA allows you to claim charitable contributions worth up to 60% of your income.
If the use of your personal vehicle qualifies under one of these categories, explore your deductible options. There is no reason not to take any deduction to which you are entitled. However, make sure you keep meticulous records on any reimbursements that you decide to take.
To balance out the loss of many itemized deductions, the TCJA raised the standard deduction to $12,200 for single filers and $24,400 for married filing jointly. This may well make itemizing less worthwhile for many filers this year and going forward.
The IRS and Treasury Department have extended the 2020 tax filing and payment deadline from April 15 to July 15, due to the COVID-19 pandemic. In the interest of safety and to curb the spread of the coronavirus, all Taxpayer Assistance Centers have been closed temporarily and face-to-face IRS services have been suspended until further notice. See the IRS Coronavirus Tax Relief page for the latest updates and stay safe.
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