Retainer clients: call us. If you are one of our retainer clients, call us for specific information about your own vehicles, your mileage records and your tax return. Own a small business? Please consider becoming our retainer client. This guide is general; as a retainer client you get information that is specific to your own tax situation, ideally before you buy or lease, not after. Book a 20-minute call.

Business vehicle tax guide

Standard mileage rate or actual costs: which should you use?

You can deduct vehicle costs in one of two ways. The mileage rate is simple. Actual costs can be larger, especially for expensive vehicles, but need more records. The first-year choice can lock you in.

General information for 2026. Written by Prem Tax and Accounting Corp, a CPA firm. This guide explains the rules in general. It is not tax advice for your situation: the answer for you depends on the vehicle, how you use it, your business type and your income. Retainer clients can call us for information specific to their own situation. Rules have exceptions and change, and official sources are linked on each page.

Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 20, 2026.

The two methods

	Standard mileage rate	Actual expenses
What you deduct	72.5 cents for each business mile from January 1 to June 30, 2026, and 76 cents from July 1 to December 31, 2026.	The business share of fuel, oil, repairs, tires, insurance, registration, lease payments, depreciation and similar costs.
What the rate already covers	Fuel, maintenance, insurance, registration and depreciation. In 2026, 35 cents of each mile is treated as depreciation.	Not applicable: you list each cost.
Still deductible on top	Business parking and tolls. If you are self-employed: the business share of car loan interest and of personal property tax.	Parking and tolls are among the costs you add up.
Records	A mileage log with the date, miles, place and purpose of each business trip.	The mileage log plus receipts for every cost, so you can total them for the year.
Depreciation	Built into the rate.	Section 179, bonus depreciation or MACRS, within the caps for cars.

Rules that catch people

Choose the rate in the first year the vehicle is available for business. After that you can use either method each year, except that once you have used MACRS, Section 179 or bonus depreciation on a car, you cannot use the rate on it.
You cannot use the rate if you use five or more vehicles at the same time (fleet use). Vehicles you alternate, using one at a time, do not count as "at the same time".
On a lease, if you choose the rate you must use it for the entire lease period, including renewals.
The rate is not available if your employer provides the vehicle.
The rate changed mid-year in 2026, so your log must show dates: 72.5 cents for miles driven through June 30 and 76 cents from July 1.
Other 2026 rates: 14 cents for charity driving (set by law) and 23.5 cents from July 1 (20.5 cents before) for medical care and for military moves.

Which one tends to win?

The rate often wins for a lower-cost or older vehicle driven many miles, and for anyone who wants less paperwork.
The actual costs method often wins for an expensive vehicle, for a heavy vehicle with a big first-year write-off, for a lease with high payments, or when repairs and insurance are high.
Run both for the first year before you decide. Once you take accelerated depreciation, the rate is no longer available on that car.

Example (numbers made up)

You drove 10,000 business miles in 2026: 6,000 before July 1 and 4,000 after. Your mileage deduction is 6,000 x 72.5 cents = $4,350, plus 4,000 x 76 cents = $3,040, a total of $7,390, plus business parking and tolls.

Not sure which method fits your vehicle? We can run both for you. Book a 20-minute call.

Common questions

Can I deduct gas as well as the mileage rate?

No. The rate already includes fuel, maintenance, insurance, registration and depreciation. You can still deduct business parking and tolls, and, if you are self-employed, the business share of car loan interest and of personal property tax on the vehicle.

Which rate applies to trips around July 1?

Use the rate for the date of each trip: 72.5 cents through June 30 and 76 cents from July 1, 2026. A log with the date of each trip makes the split easy.

Does the mileage rate lower my vehicle's tax basis?

Yes. For a vehicle used in business, the part of the rate treated as depreciation (35 cents a mile in 2026) lowers its basis, which matters when you sell or switch methods.

Can I switch methods later?

You can switch from the mileage rate to actual costs in a later year. Once you have used MACRS, Section 179 or bonus depreciation on a car, you cannot use the mileage rate on it later. If you switch from the rate to actual costs, depreciation is figured with the straight-line method over the car's remaining estimated life, within the caps.

Does a leased vehicle follow the same rules?

Yes, with one extra rule: if you choose the rate on a lease you must use it for the entire lease period, including renewals, and you cannot deduct lease payments.

Official sources

Questions about your own vehicles? We can run the numbers for you, whether you buy or lease. Book a 20-minute call or send us a message.

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