Business Vehicle Tax Deduction Rules for S and C Corporations (2025 Update)

Learn how S Corps and C Corps can maximize vehicle tax deductions using IRS mileage rules, Section 179, and bonus depreciation—even with personal use.

🚗 How to Maximize Tax Deductions When Your Corporation Owns a Vehicle

Business Vehicle

If your S Corporation or C Corporation owns a car or truck you also use personally, the IRS has clear rules. Done right, your business can claim 100% deductions for expenses like depreciation, gas, and maintenance—while keeping personal use compliant.

🔍 Business vs. Personal Use: Know the IRS Rules

Example: You drive your corporate vehicle 80% for business and 20% for personal reasons.

The IRS does not allow free personal use. You must:

• Include personal use as W-2 income, raising payroll taxes

  
  

  OR

  
  

• Reimburse the corporation, which avoids payroll tax and usually saves money

  
  

💡 Maximize Deductions with Proper Structure

Your business can deduct:

• Depreciation (via Section 179 or bonus depreciation)

• Fuel and insurance

• Repairs, tires, and oil changes

…but only if business use is above 50%.

If it drops below 50%, you must:

• Use straight-line depreciation

• Lose access to bonus depreciation and Section 179

• 
  

📉 High-Value Vehicles: Valuing Personal Use

For vehicles over $61,200 (IRS 2025 threshold), your company must use:

• The IRS lease value table, or

• Fair market lease rates,

• Plus fuel costs if paid by the business

  
  

If you don’t manage this properly before year-end, you risk:

• Amended W-2s

• IRS penalties

• Loss of deductions

  
  

✅ Pro Tip: Use Year-End Reimbursements

To stay audit-proof and maximize tax savings:

1. Track your business vs. personal miles

2. Calculate value using IRS-approved methods

3. Reimburse your business by December 31

4. Keep mileage logs and fuel receipts

   
   

Want help with calculations and compliance? We’ve got you covered.

🚘 Bonus Deduction: When You Use a Personal Vehicle for Business

If you’ve used your personal car for business or were reimbursed by your S or C Corp, a hidden tax deduction might be waiting for you when you sell or trade in your car.

📌 Hidden in Plain Sight: IRS Standard Mileage Rate Includes Depreciation

When you use the IRS mileage rate, it covers:

• Fuel

• Maintenance

• Embedded depreciation

  
  

That depreciation lowers your car’s tax basis—and opens the door to a fully deductible ordinary loss when you sell the car.

📊 Example: $12,937 Deduction on Vehicle Sale

Let’s say:

• You bought a vehicle for $50,000 in 2021

• Used it 80% for business

• Logged 40,000 business miles

• Sold it for $20,000 in 2025

  
  

You may qualify for a $12,937 ordinary loss deduction under Section 1231—a powerful tax-saving opportunity that most business owners miss.

🛑 You May Qualify If:

✅ You used the IRS standard mileage rate

✅ The car had business use

✅ You sold or traded it after years of use

✅ Final Thoughts: Make Your Vehicle Work for You

Whether your business owns the vehicle or you use your personal vehicle for business, don’t overlook these strategic tax opportunities.

With the right plan, you can:

• Deduct 100% of business-use costs

• Avoid IRS penalties

• Unlock a surprise deduction when you sell

  
  

🧾 IRS Sources:

• IRS Publication 463 – Car and Travel Expenses

• IRS Standard Mileage Rates

• IRS Reg. §1.61-21 – Personal Use of Employer Vehicles

• IRC Section 1231 – Business Property Loss