Vehicle & Mileage Deductions for Contractors (2026)

For most contractors, the vehicle is one of the largest ongoing business expenses. Trucks, vans, and work vehicles are essential — and how you deduct them can meaningfully change your tax bill. The IRS gives you two methods: the standard mileage rate and the actual expense method. Picking the right one, and keeping records that hold up, is where the money is.

The Two Methods

1. Standard mileage rate

You multiply your business miles by a per-mile rate the IRS sets each year. That rate is built to cover the whole cost of operating the vehicle — depreciation, gas, insurance, maintenance. It's simpler and needs less expense detail, but you still have to track business miles accurately.

2026 has a wrinkle most people will miss: the rate changed mid-year. For 2026 the business rate is 72.5¢ per mile from January 1 through June 30, then 76¢ per mile from July 1 through December 31 (the IRS raised it mid-year on fuel costs). On your 2026 return you'll apply both rates — split your log at June 30. Keep that split clean now and it's a non-event at filing.

2. Actual expense method

You deduct the business-use percentage of your real vehicle costs:

• Gas and oil
• Repairs and maintenance
• Insurance
• Registration and licensing
• Depreciation (or lease payments)
• Tires and other operating costs

Multiply the total by the share of miles driven for business. This is where depreciation — including Section 179 expensing (IRC §179) and bonus depreciation (IRC §168(k)) — comes in, and it's often decisive for contractors. Work vehicles rated over 6,000 lbs GVWR used more than 50% for business generally escape the passenger-auto depreciation caps of §280F, so a heavy truck can front-load a large deduction in the year you buy it. The exact amount depends on the vehicle, your business-use percentage, and the year's limits — worth modeling before you sign.

Which Is Better for a Contractor?

No single answer — it depends on the vehicle and how you drive it.

Standard mileage often wins when:

• You want simplicity and less expense recordkeeping
• The vehicle is relatively fuel-efficient / lower operating cost
• You drive a lot of business miles
• You prefer one straightforward calculation a year

Actual expense often wins when:

• You run a high-cost vehicle (heavy-duty truck, high insurance, real repair bills)
• You can document a high business-use percentage
• You want to claim §179 or bonus depreciation on the vehicle
• Your real costs clearly beat what the mileage rate would give you

Rules That Trip People Up

• The first-year choice locks you in. To keep the option of standard mileage in later years, you generally must use it in the first year the vehicle is in service. Use the actual expense method with depreciation first, and you usually can't switch that vehicle back to standard mileage. (Start on standard mileage and you keep flexibility — though a later switch to actual requires straight-line depreciation.)
• Only the business share counts. Personal miles aren't deductible under either method, so an accurate mileage log is essential.
• S-Corp / entity ownership matters. If the company owns the vehicle, costs are handled at the entity level. If you own it personally and use it for the business, an accountable plan (Treas. Reg. §1.62-2) reimbursement is usually the clean way to get the deduction without creating taxable income.
• Substantiation is not optional. Vehicles are "listed property," so IRC §274(d) requires contemporaneous records — date, business purpose, and miles for each trip. A mileage app or a written log both work if they're consistent and complete.

Common Mistakes

• No proper mileage log
• Claiming 100% business use when there's personal driving
• Switching methods incorrectly after year one
• Mixing personal and business costs with no clear documentation
• Leaving out allowable actual expenses — or deducting non-deductible ones