Plan for Auto Deductions

When you use a vehicle for business purposes, the business portion of the operating expenses can be deducted on your self-employed business or, if you are an employee, as a miscellaneous itemized deduction. The tax code provides two possible options: using the standard mileage rate or using actual expenses.

Standard Mileage Rate Method: The standard mileage rate takes the place of fuel, oil, insurance, repair, maintenance, and depreciation (or lease) expenses. The rate varies from year to year; for 2010, the standard mileage rate is 50.0 cents (down from 55.0) per mile. In addition, the cost of business-related parking and tolls is deductible. Caution: If the standard mileage rate is not used in the first year in which the vehicle is placed into service, it cannot be used in future years. If, in a subsequent year, there is a switch to the actual method, the straight-line method for depreciation must be used. If the car is leased, the standard mileage rate must be used in future years.

Actual Expenses Method: To use the actual expense method, determine the entire actual cost of operating the car for the year first and then the business portion attributable to the business miles driven. Vehicle depreciation is included as part of the operating costs of a vehicle. For vehicles placed in service during 2010, the depreciation is limited to $3,060 for passenger vehicles ($3,160 for small trucks and vans).

SUV Special Limits: Vehicles with a gross unladen weight of more than 6,000 pounds are not subject to the limitations that apply to passenger vehicles, small trucks, and vans. Instead, their business portion can be depreciated like any other type of business property, except that they are limited to $25,000 of the Section 179 expense deduction.

If you are planning the buy an SUV based on this big write-off, be sure to call first to find out the status of the current legislation and how the tax benefits apply to your particular situation.

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