A common question in the minds of many small business owners is whether an LLC can write off a car purchase. The short answer is yes, provided the vehicle is used for business purposes, subject to the rules laid down by the IRS. In this guide, we discuss what qualifies as a car purchase, how you write off a car, what documents you must have as evidence, and more.
Basic Rules for Writing Off a Vehicle
The IRS allows you to deduct the cost of buying a car when it is used for business purposes. Also, the IRS specifies the methods by which you can calculate how your car is being used, so you can accordingly write it off.
Business use vs. personal use
The IRS clearly states that you can write off a car purchase completely if the car is used for business purposes only. For example, if you buy a car to deliver products related to your business, you can write off the money spent on buying it.
However, if you use the car for both business and personal use, you can deduct only the cost of the business use. Personal errands and family use cannot be included in the deductions. It is the responsibility of the business owner to track the percentage of time the vehicle is used for business throughout the year.
IRS Topic 510: Business use rule explained
The process of determining business use and the calculation methods that must be followed are laid out in Topic 510. It also provides information about depreciation and recordkeeping, though more details on these topics are available under Topic 704 and Topic 305, respectively.
Two methods for deduction: Standard mileage vs. actual expenses
The IRS gives you two ways to calculate deductions: the standard mileage and the actual expenses incurred. You must choose only one of the two methods and must follow only the chosen method for the entire year. In other words, you cannot combine the two.
How the standard mileage rate works
As the name suggests, you must use only the standard mileage used for business. The IRS lays down the deduction amount per mile for each year. For 2024, the standard mileage rate was 67 cents per mile, and for 2025, it is 70 cents per mile. All that you have to do is multiply the mileage used for business by $0.70 for 2025 to calculate your deduction. For example, if you have used the car for conducting business for 1000 miles, the deduction is 1000 X 0.70 = $700.
There are also other rules that you must fulfill to use the standard mileage calculation:
- You must own or lease the car.
- You cannot use more than five cars at the same time, like a fleet operation.
- Only the straight-line depreciation method must have been used.
- You must not have claimed a Section 179 deduction on the car.
- No special depreciation allowance.
- You must not have used the actual expenses method since 1997 for a car you lease.
- You must use the car for your business in the first year it is available.
- If you are leasing a car, you must only use the standard mileage rate calculation method during the entire lease period.
What you can include in actual vehicle expenses
If you prefer to use the actual vehicle expenses method, simply calculate the costs involved in operating the car. You can include:
- Gas
- Oil
- Repairs
- Tires
- Insurance
- Registration fees
- Licenses
- Lease payments
- Depreciation
Note that only the business portion of the above expenses can be claimed. Also, you must maintain accurate records.
Ownership and who claims the deduction when an LLC is involved
When it comes to claiming a deduction, should the car be under the ownership of the LLC or the individual partner?
In general, titling the vehicle under the LLC offers liability protection, as personal assets cannot be used for business-related lawsuits. Moreover, use a bank account to make a purchase or for lease payments, as reimbursement arrangements for personal accounts can complicate the process.
Single-member vs. multi-member LLC considerations
There is not much of a difference from a calculation standpoint for both a single-member and a multi-member LLC, provided the title is in the LLC’s name and a business account is used for payments. The key difference is that single-member LLCs must report expenses on Schedule C, while multi-member LLCs report income on Form 1065. Note that both LLCs must maintain proper records.
Vehicle titled to the LLC vs. the owner personally
A vehicle titled to the LLC is treated as a business asset and is eligible for depreciation and reimbursement of operating costs. However, personal use of this vehicle by the owner or other members must be treated as a part of the compensation or distribution income.
On the other hand, if the car owner is a member of the LLC, the expenses related to the business can be deducted. These expenses are reported on Schedule C, and the LLC may reimburse the owner using an accounting plan.
Publication 463 of the IRS describes how car-related expenses must be reimbursed and reported.
Buying a Car Through an LLC
You can buy a car through an LLC, as it offers liability protection and tax advantages. However, you must follow the IRS rules strictly and maintain accurate records.
How Section 179 and Bonus Depreciation Work
MAJOR UPDATES FROM THE 2025 OBBBA ACT:
Section 179 of the IRS tax code lays down the rules related to depreciation. It allows businesses to deduct depreciation for cars in the year in which they were brought into business use. The depreciation rules depend largely on the vehicle’s Gross Vehicle Weight Rating (GVWR).
Section 179 limits have been significantly increased under the 2025 OBBBA Act:
- Maximum Section 179 deduction: $2,500,000 for tax years beginning after December 31, 2024 (up from $1,250,000)
- Phase-out threshold: $4,000,000 (up from $3,130,000)
- Heavy SUV cap (over 6,000 lbs): $31,300 for 2025 (up from $30,500)
In general, cars with lower weights, typically under 6,000 pounds, come under luxury auto limits. These are four-wheeled vehicles designed to carry passengers on public roads.
Luxury vehicle depreciation limits for 2025:
- With 100% bonus depreciation (vehicles acquired after January 19, 2025): $20,200 first-year cap
- Without bonus depreciation: $12,200 first-year cap
Vehicles that are between 6,000 and 14,000 pounds have a deduction limit of $31,300 under Section 179.
Bonus Depreciation Permanently Restored:
One of the most significant changes in the 2025 OBBBA Act is the permanent restoration of 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. This means you can now deduct 100% of the remaining cost after Section 179 limits in the first year, rather than the phased-out rates that applied before this date.
Note: Property acquired before January 20, 2025 follows the old 40% bonus depreciation rate for 2025.
Limits on vehicle depreciation and heavy vehicles
Heavy vehicles have higher depreciation limits. In the case of heavy-duty trucks, dump trucks, and specialized heavy vehicles, depreciation is 100% of the cost under the restored bonus depreciation rules. However, the vehicles must be within the rules established under Publication 946.
Some key criteria are:
- The vehicle must be used for business purposes more than 50% of the time.
- It must be placed in service in the year in which depreciation is claimed.
- For full bonus depreciation benefits, it must be new and acquired after January 19, 2025, and used in an active business.
- The total cost of depreciation claimed must not exceed the net taxable income of your business.
Documentation and supporting business use percentage
One of the key requirements for claiming depreciation is meticulous records. You must keep logs of business use, along with documents to support your claims, in case of an IRS audit. These logs must show that the vehicle has been used for business purposes more than 50% of the time.
It is good to maintain the following records:
- Odometer readings at the start and end of the year.
- Total miles driven and miles logged for business purposes.
- Purpose of each trip.
- Receipts for expenses.
As these rules are confusing and stringent, if you feel overwhelmed book a free consultation with Manay CPA.
Leasing a Car with an LLC
Instead of buying a car outright, some LLCs may prefer leasing, as monthly payments are easier than upfront investments.
How to write off a car lease for business
When you lease a car, all expenses associated with the lease can be claimed as a deduction. However, only the expenses associated with the business use are allowed. For example, if you used a leased car 70% of the time for business, then you can claim 70% of the expenses as a deduction. Documentation is key to proving your claims.
Comparing lease vs. purchase: Which saves more?
Leasing allows you to claim all expenses associated with business use as a deduction. Also, the monthly payments are a lesser burden for some LLCs than upfront purchase costs.
However, with the 2025 OBBBA Act changes, owning a car has become significantly more attractive from a tax perspective. The restored 100% bonus depreciation and increased Section 179 limits mean businesses can now deduct much larger amounts in the first year of ownership compared to previous years.
In all, there’s no single answer. The choice depends on the number of miles driven, long-term plans, business owners’ preferences, cash flow of the business, and more. You can consult experienced CPAs to help make this decision.
NEW: Personal Car Loan Interest Deduction (2025-2028)
Important addition from the 2025 OBBBA Act:
While this blog post focuses on business vehicle deductions, it’s important to note that the OBBBA Act also introduced a temporary personal car loan interest deduction for individuals purchasing qualifying vehicles for personal use.
Key details:
-
- Up to $10,000 annual deduction for interest on personal vehicle loans
- Available for tax years 2025 through 2028 only
- Must be a NEW vehicle with final assembly in the United States
- GVWR must be under 14,000 lbs
- Vehicle must be purchased between January 1, 2025 and December 31, 2028
- This is an “above-the-line” deduction (available even if you take the standard deduction)
Income phase-out limits:
- Single filers: Begins at $100,000 MAGI
- Married filing jointly: Begins at $200,000 MAGI
Important: This deduction is for personal-use vehicles only, not business vehicles. Business owners should consult with their CPA to determine whether claiming this personal deduction or business vehicle deductions provides greater tax benefits.
Avoid These Common Tax Mistakes
Car purchase and leasing deductions are complex, as there are many rules. This can lead to mistakes that may warrant an IRS audit and even penalties. Below are a few common mistakes to avoid.
Mixing personal and business use
While it is common to use cars for personal commute as well as business purposes, it’s important to claim deductions only for the time it is used for business. Also, make sure to maintain the documentation to prove your claims. All personal miles and use must be removed from the deductions.
Forgetting proper mileage and expense records
You must maintain mileage and expense records to claim deductions. Otherwise, the IRS can reject your deductions. Note that the IRS will not accept estimates. Many owners today are turning to electronic apps, but the onus is on the owner to ensure accuracy.
Some CPA firms may also offer services to maintain records on your behalf.
Reporting Your Vehicle Deductions
To report vehicle deductions, you must maintain documents and use the appropriate forms.
IRS forms and documentation you’ll need
The IRS forms depend on how the LLC is taxed. Single-member LLCs and sole proprietorships must use Schedule C, while multi-member LLCs must file through Form 1065. If the LLC has opted to be treated as an S-Corp, then Form 1120 must be filed. Additionally, Form 4562 must be filed for claiming depreciation.
When to get professional tax help
There are many rules related to car purchase and leasing deductions. The 2025 OBBBA Act has introduced significant changes to depreciation limits and bonus depreciation rules that can have major impacts on your tax strategy. Staying on top of all these changes can take time and effort. Instead, it’s best to take professional help from firms like Manay CPA, so you can focus on your business and maximize the deductions.
Practical Examples & Decision Points for Your LLC
Below are some practical examples that can help you better understand the tax implications for your LLC under the new 2025 OBBBA rules.
Example 1: LLC buys a vehicle and uses it 80% for business
If a vehicle costs $50,000 and you use it 80% of the time for your business, then you can claim 80% of all expenses as deductions.
Under the 2025 OBBBA Act rules:
If this is a luxury vehicle (under 6,000 lbs) acquired after January 19, 2025, you could claim:
- First year depreciation: Up to $20,200 (with 100% bonus depreciation)
- But limited to 80% business use: $16,160
If this is a heavy SUV (over 6,000 lbs but under 14,000 lbs) acquired after January 19, 2025:
- Section 179 deduction: Up to $31,300 (80% business use = $25,040)
- Plus 100% bonus depreciation on remaining balance
You must have logs to show that the vehicle was used 80% for business.
Example 2: LLC leases a luxury vehicle: what extra rules apply?
If an LLC leases a luxury vehicle, only the amount used for business can be claimed as a deduction. Also, there is something called the “income inclusion” limit, which ensures parity with the depreciation limits for owned luxury vehicles.
Buying vs. leasing: Cash-flow, tax, flexibility
Both buying and leasing are good options for LLCs, and the choice depends on their long-term goals and financial status.
With the 2025 OBBBA changes, buying has become more attractive due to the restored 100% bonus depreciation and increased Section 179 limits. If cash flow is a priority, then leasing is better, as monthly payments offer flexibility, as opposed to buying, which requires a big chunk of initial investment upfront. However, buying can offer significantly more tax benefits than leasing, especially for vehicles acquired after January 19, 2025.
When buying through the LLC might make more sense
Buying through an LLC is a good choice when:
- The vehicle will be largely used for businesses.
- The owner wants to claim substantial depreciation benefits (especially with the restored 100% bonus depreciation).
- It is a heavy vehicle that qualifies for higher deductions (up to $31,300 under Section 179).
- The LLC wants to keep the vehicle as a business asset.
- The vehicle will be acquired after January 19, 2025 to take advantage of 100% bonus depreciation.
FAQ Section
What are the benefits of buying a car under an LLC?
Buying through an LLC offers limited liability protection and better deductions, provided at least 50% is used for the business. Under the 2025 OBBBA Act, the tax benefits have been significantly enhanced with increased Section 179 limits and restored 100% bonus depreciation.
Can you write off 100% of a company vehicle?
Yes, if the vehicle is a heavy-duty truck or an SUV that is 100% used for business purposes only. With the 2025 OBBBA Act changes, you may be able to deduct 100% of the cost in the first year using the combination of Section 179 (up to $2,500,000 total across all assets) and bonus depreciation (100% for vehicles acquired after January 19, 2025).
Can my LLC pay my car payment?
Yes, if it is used for business purposes. The miles used for personal purposes must be included as income and reported to the IRS.
How does the new personal car loan interest deduction work?
The 2025 OBBBA Act introduced a temporary deduction (2025-2028) for up to $10,000 in interest on personal vehicle loans for qualifying new vehicles assembled in the United States. This is separate from business vehicle deductions and is subject to income limits. Consult with your CPA to determine the best strategy for your situation.
Disclaimer: Tax laws are complex and change frequently. This guide reflects the 2025 OBBBA Act changes as of December 2025. Always consult with a qualified CPA or tax professional before making tax-related decisions.
