Running Costs

Car expenses and taxes: the basics

This page contains no tax rates, no mileage rates and no dollar limits — on purpose. Those change, sometimes yearly, and a number remembered from last season is worse than none. What doesn't change much is the map: which situations exist, who they touch, and who publishes the current answer.

Budget Pilot · September 28, 2026 · 6 min read

Each entry below has three parts. Who it applies to, so you can skip what isn't yours. What is generally involved, described in principle. And where to confirm, which is the part to actually act on. The Internal Revenue Service publishes the federal rules and updates them; your state's revenue department handles state income tax; and a tax professional can tell you how either applies to a return that has your name on it. Nothing here is tax advice.

Driving to work
Business and self-employed miles
Employees who drive for the job
Charity and medical miles
Sales tax on a purchase
Registration and property tax
Loan interest
Clean vehicle credits
Leasing a car used for business
Selling a car

Driving to work

Who: Anyone driving between home and a regular place of work.
What: Commuting is generally treated as a personal expense under federal rules, however far the drive. The picture can change when there is no regular workplace, when you travel to a temporary work location, or when home is your principal place of business — those distinctions are exactly where people go wrong in both directions.
Where to confirm: IRS Publication 463 (travel, gift and car expenses) defines commuting and its exceptions.

Business and self-employed miles

Who: Sole proprietors, freelancers, independent contractors, people who drive for delivery or rideshare apps, and small-business owners using a personal car for work.
What: Federal rules have generally allowed business driving to be counted by one of two methods: a standard rate per business mile, or the actual expenses of the car (fuel, repairs, insurance, depreciation and so on) multiplied by the business-use share. Which method you may use, and when you are allowed to switch between them, is governed by rules that are easy to trip over in the first year a car is used for business. Either way, the case rests on records: a log of date, destination, purpose and miles.
Where to confirm: The current rate is published on the IRS standard mileage rates page; the method rules are in Publication 463 and the instructions for the business schedule you file.

Employees who drive for the job

Who: W-2 employees who use their own car for work errands, client visits or travel between job sites.
What: Two separate questions. First, reimbursement: money your employer pays back under a properly structured plan is generally not treated as your income, but the plan's design matters. Second, unreimbursed costs: whether an employee can deduct them federally has changed over the years and depends on the employee's category. Some states handle this differently from the federal return.
Where to confirm: Your employer's payroll or HR department for how reimbursements are handled; Publication 463 for the federal rule in the year you are filing; your state revenue department for the state side.

Charity and medical miles

Who: People who drive as volunteers for a qualified charity, or to medical care, and who itemize deductions.
What: The IRS has historically published separate per-mile figures for these purposes, distinct from the business figure. They only help if you itemize and, for medical costs, if your expenses clear the applicable floor. Parking and tolls on those trips are usually tracked alongside.
Where to confirm: The same IRS mileage-rates page, plus the IRS publications on medical expenses and charitable contributions for the year in question.

Sales tax on a purchase

Who: People who bought a car during the year and itemize deductions on their federal return.
What: Itemizers have been able to deduct state and local sales taxes instead of state and local income taxes — useful mainly in years with a large purchase, or in states without an income tax. The total state-and-local deduction is capped, and the cap has changed more than once, so the arithmetic from a prior year may not hold.
Where to confirm: The instructions for Schedule A and the sales tax deduction calculator on irs.gov. If you bought out a lease, the tax on that purchase has its own wrinkles; see sales tax when you buy out a lease.

Registration and property tax

Who: Itemizers in places where part of the yearly registration charge, or a separate local tax, is based on the vehicle's value.
What: A flat fee for plates or a weight-based charge is generally not a deductible tax. A portion charged annually according to the car's value may count as personal property tax. Many notices lump several items together, so the deductible piece — if there is one — has to be separated out.
Where to confirm: Your registration or tax notice (ask your state's motor vehicle agency for a breakdown if it isn't itemized), and Schedule A instructions. Registration, title and the other state fees explains the fee types you might see.

Loan interest

Who: Anyone paying interest on a car loan.
What: For a personal car, interest has long been treated as non-deductible personal interest. Recent federal legislation created a temporary deduction for interest on certain loans for certain new vehicles, with conditions on the vehicle, the loan and the borrower's income. Whether it exists for the year you are filing, and whether your loan qualifies, are questions to check rather than assume. Separately, the business-use share of interest on a car used in a business may be counted as a business expense under the actual-expense approach.
Where to confirm: Search irs.gov for current guidance on car loan interest for the tax year you are filing, and ask a preparer to check your loan paperwork against the conditions.

Clean vehicle credits

Who: Buyers of electric and some plug-in hybrid vehicles, new or used.
What: Federal credits for these purchases have been rewritten several times, with rules about the vehicle, the price, the buyer's income, and when and how the credit could be claimed — and legislation has since ended them for many purchases after a cutoff date. Eligibility depends on the date the car was acquired, so the right answer for a neighbor's purchase may be wrong for yours. Some states and utilities have run their own programs.
Where to confirm: The IRS clean vehicle credit pages for the date of purchase; your state energy office or utility for anything local.

Leasing a car used for business

Who: Self-employed people and business owners who lease the car they use for work.
What: The business-use share of lease payments has generally been deductible under the actual-expense approach, sometimes with an adjustment that applies to higher-value vehicles. The choice between a standard mileage rate and actual expenses carries its own rules for leased cars.
Where to confirm: Publication 463, which covers leased vehicles, and a preparer if the car's value may trigger the adjustment.

Selling a car

Who: Anyone who sold or traded in a car during the year.
What: Selling a personal car for less than you paid is a personal loss and generally not deductible; selling one for more than you paid — rare, but it happens with some collectible or scarce models — can be a taxable gain. A car that was used for business is different: prior depreciation can turn part of the sale price into income.
Where to confirm: A tax professional, with your purchase paperwork and any depreciation records from prior returns in hand.

What to bring to a tax professional

A mileage log with dates, destinations, purposes and odometer readings — kept during the year, not rebuilt in April.
Receipts or statements for fuel, repairs, insurance, parking and tolls if you might use actual expenses.
The purchase contract or lease agreement, including the sales tax line.
Your registration notices, with any value-based portion identified.
Loan statements showing interest paid during the year.
Any employer reimbursement records.

The log is the one that can't be recreated. A few seconds per trip in a notebook or phone app beats an afternoon of reconstruction from calendar entries, and it is the record people most often lack when a question comes up. If your car budget already lives in a spreadsheet, the log tab from setting up a car budget spreadsheet can double as one with a column added for trip purpose.