If you run up a lot of mileage commuting from one rental to another, this tax tip is for you! Auto expenses incurred exclusively for rental activity can be fully deductible and using the actual expense method over standard mileage may be more beneficial especially if you incurred a lot of expense this year.
Usually the largest vehicle expense that you can deduct is depreciation, which allows you to deduct the value of your vehicle over a period of 5 years. Many times, depreciation is the factor that determines which expense method will be used.
For example, a person who used a $25,000 vehicle and drove 10,000 business miles would use the actual expense method so they could take advantage of a $5,000 depreciation deduction; whereas a person with a $20,000 car who drove 10,000 miles would benefit more from the standard mileage deduction of $4,850. Consult with a tax advisor for specific rules about listed property or depreciation limits.
Other deductible costs include car insurance, DMV registration fees, tolls, parking, gas, oil changes, tune-ups, tires, maintenance, etc… When deducting actual vehicle expenses, it is very important to keep a track of costs and receipts. If you do not use the vehicle solely for rental activity, then you should keep a record of mileage traveled for your business, so you can deduct a percentage of the vehicle’s actual expenses.
Whether using the standard mileage or actual expense deduction, be sure to record all expenses related to your rental activity. You usually won’t know which deduction method to use, so it’s best to just keep a journal of all vehicle activities.
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