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Updated Apr 19, 2024

When Is Auto Insurance Tax Deductible?

Business expenses allow you to write off certain things on your taxes. Learn what you can deduct from the cost of your work vehicle.

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Kimberlee Leonard, Senior Analyst & Expert on Business Operations
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When you use a vehicle for business, you can deduct various expenses from your taxes, including auto insurance. However, you may be better off taking a mileage deduction when figuring out the best tax strategy for your business vehicle. Review both options with a tax advisor to make sure you choose the most advantageous way to take the deduction.

Here’s what business owners need to know about commercial auto insurance and other vehicle expenses you can write off on your taxes.

Is auto insurance tax deductible?

When you use your auto for business purposes, you can deduct part of the total expense associated with running and maintaining the vehicle, including auto insurance expenses. Whether you can write off every expense depends on whether you use the vehicle for personal and professional purposes or you use it exclusively as a work vehicle. 

For example, an Uber or Lyft driver will use their car for personal and business purposes. When they have the app on and are on call or driving a passenger, they are on business hours. The rest of the time, they’re using the car for personal purposes. When there’s a split like this, the tax deduction will depend on the percentage of commercial usage versus personal usage. So, if the Uber driver works only 40 percent of the time, they can deduct only up to 40 percent of their costs. 

When using the mileage calculation, the driver can track mileage and take a standard mileage deduction only for miles traveled while working. The 2024 standard mileage deduction is $0.67 per mile tracked for business. While you can deduct taxes, insurance costs and other auto expenses, most people opt for the mileage deduction, as it’s easier and often yields a better deduction.

Bottom LineBottom line
A business owner can deduct auto expenses, but the easiest and most cost-effective option may be to take a mileage deduction.

What auto insurance costs can you write off?

If you decide to deduct actual expenses rather than mileage, you can deduct your insurance costs and a lot more. If you plan to take actual deductions, make sure to keep receipts from all maintenance and other costs to validate your claims. 

These are some of the expenses you can deduct:

  • Car insurance
  • Car repairs
  • Depreciation
  • Gas and oil
  • Garage rent
  • Lease payments
  • Registration licenses and fees
  • Tires
  • Tolls
  • Parking fees

You’ll report expenses on one of two forms, depending on how your business is established. If you’re self-employed, you’ll add the information to Schedule C. If you have business entities and file Form 1120, you’ll use Form 2106 to tally the expenses. 

How to write off auto insurance and other expenses

Your business entity and how you file taxes will determine the form you use to write off your car insurance deductible. Self-employed individuals who file a personal return, Form 1040, will track expenses on Schedule C. 

On Schedule C, you’ll see a section to list all expenses in Part II. This is where you’ll track auto expenses. Line 9 summarizes the car or truck expenses. Line 13 tracks the vehicle’s depreciation, and Line 15 is devoted to all business insurance expenses other than health insurance. These line items, along with all the other expenses in your business, will be tallied on Line 28.

IRS Form 2106 is similar to a Schedule C in that it tracks business employees’ expenses. You’ll start with Section C for the actual expenses. Unlike Schedule C, Form 2106 doesn’t separate insurance as a line item. You’ll include your insurance with other vehicle expenses on Line 23. Depreciation is handled in Section D for vehicles.

Did You Know?Did you know
A business owner can write off other types of business insurance costs, including general liability insurance, workers’ compensation, a business owner’s policy and professional liability insurance.

Tips for managing auto insurance deductions

For the most accurate tax reporting, follow these tips:

Deduct only business use of the vehicle. 

Unless you have a vehicle that is used solely for your business, such as a delivery van, you will use your automobile for personal purposes some of the time. Determine what percentage of the time, by mileage, it is used for business. Multiply that percentage by the vehicle’s annual mileage to get the number of miles you can deduct. If you are using individual vehicle-related expenses rather than mileage, multiply the expenses by the percentage to get the amount you can write off. Remember, if you use the vehicle to commute to your office, that is considered a personal use of the vehicle, not a business expense.

Or track mileage of specific business trips.

As an alternative to using the percentage method, you can track the miles that you drive for business using a mileage tracker app. Each time you get in the car, launch the app and designate the trip as either personal or business. At the end of the year, the app will total all business trip mileage.  

If using the expense method, keep your receipts.

Put the receipts for all vehicle-related expenses, including vehicle maintenance, repair, insurance, gas and tolls, in a file folder. This not only makes it easy to calculate accurate vehicle expenses when you are doing your taxes, but it also serves as a printed record if you are audited at some point. The IRS may take several years to do an audit, so it is a good rule of thumb to keep these records for at least five years.

You may be able to deduct vehicle property taxes.

When using the expense method, you might be able to deduct local or state annual property taxes from your federal return, as long as you have not already met your state and local tax deduction maximum amount.

For vehicle purchases, you may be able to claim a tax credit.

If you bought an electric or hybrid vehicle, you might qualify for a tax credit. This is limited based on the purchase price, the make and model of the vehicle, whether it is new or used, and your overall income.

Vehicle damage or loss due to a disaster may be tax deductible.

If your vehicle was damaged or destroyed due to a federally declared disaster, such as a hurricane, flood, fire, tornado or earthquake, you may be able to write off the amount of the loss that was not covered by insurance and/or salvage value. The same applies to theft of a vehicle. However, if the money you get from the insurance company is more than the value of the vehicle, that difference is taxable as income.

Auto insurance tax deduction FAQ

Commercial auto insurance is an insurance policy designed specifically to handle the risks of commercial vehicles. Some personal auto insurance policies will allow policyholders to denote that their personal vehicle is also used for business pursuits. This applies when vehicles are used for both personal and business purposes. Think of a real estate agent taking clients around in their car. The commercial auto insurance policy is for vehicles exclusively owned and operated by a business. Business owners should talk to their insurance agent about their vehicle usage to determine if a commercial auto insurance policy is necessary. Commercial auto insurance policies are often more expensive because they cover the risk of business pursuits. As in the real estate agent example, those who sometimes use a personal vehicle for work will obtain a personal auto insurance policy designated for business pursuits. But when a vehicle, such as a delivery van or an electrician’s truck, is used solely for business purposes, a commercial insurance policy is required. Tip: The best liability insurance providers will offer guidance on vehicle usage if you have any questions about whether or not your vehicle is covered adequately for business use.
Ordinary insurance expenses, such as commercial auto insurance, are valuable deductions to take on tax returns. However, they’re not always the best option. Run the numbers to see how much you can deduct with your ordinary expenses versus the standard mileage deduction. If the standard mileage deduction is more, this is the better avenue to take. The only record you need to have with the standard mileage deduction is a mileage log. The mileage log tracks the miles for each trip. It states where you went and for what reason. This is especially important for vehicles that have both personal and commercial use. If you are audited, the IRS representative will want to see the log of the miles used for business purposes.
When you have a vehicle that you can validly deduct on tax returns, you can also write off any deductibles paid during the tax year. This means that if you had an accident, filed a claim and paid a $500 deductible, you could include that $500 with other repairs made to the car. It’s an out-of-pocket expense and thus deductible. If your car is only partially used for business purposes, the deductible would be written off only for the percentage of time that you use the car for business.
No. You can opt to use the mileage method. If you are using the actual expense method, you will need to itemize those expenses and keep records of them.
No. If you are a military reservist and you travel more than 100 miles from your home in order to serve, you might be able to deduct some of your travel costs as an adjustment to your gross income. Also, if you are a qualified performing artist, such as a musician or a fee-based state or local government official, you may be able to deduct auto insurance costs. Otherwise, you must be self-employed in order to deduct auto insurance costs from your taxes.

Jennifer Dublino contributed to this article.

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Kimberlee Leonard, Senior Analyst & Expert on Business Operations
Kimberlee Leonard is an insurance expert who guides business owners through the complicated world of business insurance. A former State Farm agency owner herself, Leonard started her decades-long career as a financial consultant advising on investment strategies before switching her focus to insurance and risk mitigation for businesses. Leonard has developed insurance primers on everything from small business insurance costs to specific policies, such as excess liability insurance. She has also reviewed business software tools, analyzed employee retirement plan providers and continues to share insights on financial topics as they relate to business. Leonard's work has been published in Forbes, U.S. News and World Report, Fortune, Newsweek and other respected outlets.
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