CashoutGlossary / Actual expense method
Actual expense method
A way to figure your car deduction from what the car really cost you, such as gas, insurance, repairs and depreciation, times your business-use share.
The actual expense method is the alternative to the standard mileage rate. Instead of a flat amount per mile, you add up what the car really cost you for the year and deduct the business share.
IRS Publication 463 lists the costs that count: depreciation, lease payments, registration fees, licenses, insurance, repairs, gas, garage rent, tires, oil, tolls and parking fees. If you also drive the car for personal reasons, you can deduct only the cost of its business use, split by the miles driven for each purpose. That split is your business-use percentage.
It can come out ahead of the standard rate when a car is expensive to own and run. The price is paperwork: you need receipts for every cost and a mileage log anyway, because the percentage depends on your business miles and total miles.
Watch the lock-in before you pick it:
- To use the standard rate on a car you own, you must choose it in the first year the car is available for use in your business. Start with actual expenses and you generally can't move to the standard rate for that car later.
- The standard rate is off the table once you've claimed MACRS depreciation, a section 179 deduction or the special depreciation allowance on the car.
- Going the other way is allowed: if you switch from the standard rate to actual expenses before the car is fully depreciated, you must use straight-line depreciation.
Whichever method you use, you can't deduct the commute.
Related terms
Standard mileage rate · Business-use percentage · Mileage deduction · Mileage log · Schedule C
