Automobile Deductions

Automobile Deductions

Quick Up-date

Deducting an automobile is limited to business use only; generally, a taxpayer may not take a deduction for the personal use and/or commuting use of their own automobile.

Accordingly, different rules apply for proprietors, employers and employees:

Proprietors

Generally proprietors may deduct a pro-rata portion of auto expense-based on the portion of the auto’s business use compared to other use.

Employers

Generally, the business use portion is 100%. The employer uses the auto for business purposes (i.e. the employee is using it for business purposes). The employee uses it the balance of the time for personal use and/or commuting. Typically, the FMV of the auto is included in the income of the employee. Therefore, all of the use of the auto is generally deductible by the employer.

Employee

Similar to proprietors, employees generally may deduct the costs associated with the business use portion of an auto which they own and use for business purposes.

Defining Business Use

Automobile use is divided into three categories of use: business, personal or commuting

The general rule:

The first and last trip is commuting; everything in between (assuming business use) is deductible.

However, read on…..

Skipping the history and references, the auto expenses are generally deductible as follows:

1.) A taxpayer may deduct daily transportation expenses uncured in going between a residence and a temporary work location outside the metropolitan area where the taxpayer lives and normally works. Transportation expenses incurred between the taxpayer’s residence and a temporary work location within that metropolitan area are nondeductible commuting expenses. Possible exceptions follow.

2.) If a taxpayer has one or more regular work locations away from the residence, they may deduct daily transportation expense incurred ingoing between the taxpayer’s residence and a temporary work location in the same trade or business regardless of the distance.

What this means in the to and from work portion may be now deductible.

3.) If the residence is the taxpayer’s is an office in the home within the meaning of SectionA(c)(1)(A), the taxpayer may deduct daily transportation expenses incurred in going between the residence and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance.

What this means is all miles are deductible, there is no to and from work.

The auto log example presented is the “perfect log”, however, a contemporaneous is NOT required. However, the regulations require you to record the information at or near the time the expense is incurred. i.e. each stop.

So, recording the business use is critical. The recording of commuting and personal can be “backed into”.

The log may done based a sample time frame of either:

The first three months of the year or the first week of each month.

This is only a very superficial recap deducting the business use of an auto. The rules are endless and have many complicated issues. Further research on your part is required in order to fully understand all the rules.