Rideshare Taxes: Deduct Mileage, Lease Payments or Car Loan?
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There have been many questions about which deduction to take. The below chart summarizes what deductions you can take if you do one of the three options below. If you pick a column, those are the only deductions you can take. If you see a blank space next to another deduction on another column, you will not be able to take those deductions.
These deductions are all assuming 100% business use, which is impossible. The highest many claim is 90% utilization so multiply any deduction (except standard mileage, if you keep track of your personal and business use case) by 0.9 or however much percentage you use it for business.
Scroll past the chart for more explanation on the different deductions:
Standard Mileage | Expenses (Lease) | Expenses (Depreciation) |
| Mileage | Lease Payments | Depreciation |
| Parking Fees and Tolls | Parking Fees and Tolls | Parking Fees and Tolls |
| Interest on your Auto Loan | Interest on your Auto Loan | |
| Bottled Water/Snacks | Bottled Water/Snacks | Bottled Water/Snacks |
| Registration Fees and Taxes | Registration Fees and Taxes | |
| Garage Rent | Garage Rent | |
| Insurance | Insurance | |
| Gas (or Diesel) | Gas (or Diesel) | |
| Oil | Oil | |
| Maintenance | Maintenance | |
| Repairs | Repairs | |
| Tires | Tires | |
| Licence Plates | Licence Plates | |
| Car Washes | Car Washes | |
| Cell Phone Bill | Cell Phone Bill | Cell Phone Bill |
| In Car Entertainment | In Car Entertainment | In Car Entertainment |
Here are the times when you use one or the other:
- If you own your own car that is not a heavy SUV, do the mileage deduction
- If you own a large SUV, then go with the depreciation method
- If you LEASE a livery vehicle (UberBlack, UberSUV, UberX with livery plates), go with the expenses method
Here is two main methods of tax deductions: Standard Mileage or Expenses
Standard Mileage Rate (56 cents for 2013)
You can not use the standard mileage rate if:
- You own or lease the car and operate five or more cars at the same time, as in a fleet operations
- Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction),
- Claimed a section 179 deduction (discussed later) on the car,
- Claimed the special depreciation allowance on the car,
- Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement.
Note. You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above.
If you use the standard mileage rate, you cannot deduct actual car expenses:
- Depreciation
- Lease payments
- Maintenance and repairs
- Gasoline (including gasoline taxes)
- Oil
- Insurance
- Vehicle Registration fees
- Car Washes
You can still deduct business related:
- Parking fees and tolls.
- Interest paid on a car loan (only if you are self-employed)
- Cell Phone Bill
- Water/Gum/Car Chargers/Candy for Passengers
Actual Expenses
You must use actual expenses if:
- You have a fleet of vehicles (more than four) used simultaneously for your business activities.
- You lease a car and do not plan on using the standard mileage rate for the entirety of the lease.
- You used the actual expense calculation when your vehicle was first used for business purposes. You cannot switch to standard mileage rate in later years.
If you choose not to, or are unable to use the standard mileage rate, you can deduct the actual expenses associated with your vehicle. This includes but is not limited to:
- Interest on a vehicle loan (only for self-employed)
- Vehicle depreciation (leased vehicles cannot be depreciated)
- Registration fees and tax
- Parking fees and tolls
- Garage rent
- Lease payments (an income inclusion amount must be subtracted from the amount you can deduct if the vehicle’s value is above a certain amount. This amount changes yearly so be sure to check with the IRS or your accountant.)
- Insurance
- Gasoline
- Oil
- Maintenance
- Repairs
- Tires
- License plates
Tickets and Fines
- Under no circumstances can you deduct any fines or tickets while engaging in any business. If they are fines/fees related to livery fines, Uber or Lyft will reimburse you for those.
Car Loan Deduction
- Sorry, but there is no such thing. You will need to depreciate your car’s value and deduct that from your income. The interest on a car loan is tax deductible, however. Depreciation is meant for car depreciation and wasn’t factored in to account for car loan interest.
How to Deduct based on Mileage:
Record the number of miles you use for your business. I keep logs of every mile I drive on Lyft and Uber and also record the odometer, so I can see what percentage my utilitization is, even though it is not needed for this type of deduction if you kept track of every mile you drive.
You may be able to take the following deductions as well:
- Parking fees and tolls.
- Interest paid on a car loan (only if you are self-employed)
- Cell Phone Bill
- Water/Gum/Car Chargers/Candy for Passengers
See the list above for all the items you CANNOT deduction.
How to Deduct based on Car Expenses:
There are generally two ways to deduct based on actual car expenses:
- Car lease payments (or rental fees from UberBlack, UberSUV, UberX with livery plates)
- Car Depreciation
Let’s start off with a driver who has never deduct any expenses before this tax year.
Expenses (Lease) | Expenses (Depreciation) |
| Lease Payments | Depreciation |
| Parking Fees and Tolls | Parking Fees and Tolls |
| Interest on your Auto Loan | |
| Bottled Water/Snacks | Bottled Water/Snacks |
| Registration Fees and Taxes | Registration Fees and Taxes |
| Garage Rent | Garage Rent |
| Insurance | Insurance |
| Gas (or Diesel) | Gas (or Diesel) |
| Oil | Oil |
| Maintenance | Maintenance |
| Repairs | Repairs |
| Tires | Tires |
| Licence Plates | Licence Plates |
| Car Washes | Car Washes |
| Cell Phone Bill | Cell Phone Bill |
| In Car Entertainment | In Car Entertainment |
- If you lease a car, go with deducting your lease payments. It often is the best and easiest route to take.
- If you did not lease your car, you will have to depreciate your car.
Lease payments
If you lease your car, you can deduct any lease payments including sales tax (http://smallbusiness.chron.com/deduct-monthly-tax-car-lease-19416.html) but except for the gas guzzler tax. Look at the above chart to see what else you can deduct.
As rideshare drivers use the cars a lot, you will inevitably run into the issue of excess mileage fess or exceeding the mileage limit on your lease. In this case, you should deduct your expenses as you can just write off any excess mileage fees you incur while on the lease. http://finance.zacks.com/can-excess-miles-lease-written-off-tax-writeoff-10464.html
Depreciation
This will get complicated. In short, very few people take this route as many of us drivers log too many miles, so many take the mileage deduction as it is much higher than depreciation. In case you are interested in how to do it:
This analysis is for full time drivers who bought any car (new or used) this year and used it for Uber:
Here is the maximum depreciation deduction for cars (Trucks and Vans less than GVWR of 6000 lb is similar amounts)
| Dated Placed in Service | 1st Year | 2nd Year | 3rd Year | 4 & Later years |
| 2013 | 11160 (or 3160) | 5100 | 3050 | 1875 |
| 2012 | 11160 (or 3160) | 5100 | 3050 | 1875 |
| 2011 | 11060 (or 3060) | 4900 | 2950 | 1775 |
| 2010 | 11060 (or 3060) | 4900 | 2950 | 1775 |
| 2009 | 10960 (or 2960) | 4800 | 2850 | 1775 |
| 2008 | 10960 (or 2960) | 4800 | 2850 | 1775 |
| 2007 | 3060 | 4900 | 2850 | 1775 |
| 2006 | 2960 | 4800 | 2850 | 1775 |
| 2005 | 2960 | 4700 | 2850 | 1675 |
| 2004 | 10610 (or 2960) | 4800 | 2850 | 1675 |
| 5/06/2003–12/31/2003 | 10710 (or 3060) | 4900 | 2950 | 1775 |
| 1/01/2003–5/05/2003 | 7660 (or 3060) | 4900 | 2950 | 1775 |
(The lower number in the first year is if you do not take the special depreciation in your first year. It is bound by Section 179 of the IRS code)
Many people do the straight-line depreciation method: Divide the cost of the car by 5 and deduct that as a loss each year. However, they are subject the maximums listed above so for many cars, its not worth it. You only get back about 10k after four years, and as we all know, cars cost much more than that.
This does not include any other car expenses, such as gas, maintenance and repairs. If you can get a new car for about $20-30k, the deductions (including special deductions for new cars) will take care of the car within 4 years, assuming you can and will take the special depreciation in your first year.
http://www.smbiz.com/sbrl003.html#dsm
Deduction for Vehicles with GVWR over 6000 pounds
Gross Vehicle Weight Rating (GVWR) is the manufacturer’s specified fully loaded vehicle weight. Special rules apply to vehicles with a GVWR of over 6000 pounds. There are much higher depreciation limits on purchased vehicles with a GVWR over 6,000 pounds. Combine this with a Section 179 deduction and $25,000 of the vehicle cost can be deducted annually.
Deduction on Buying a 2015 Toyota Sequoia LE at $30,000 (Seats 8), GVWR of 7100 lbs
- Adding up all the maximum deductions, you can deduct the close to the entire amount in the first year: $25000 + 50% of residual value (50% bonus valid for the 2014 tax rate) of $5000 = $2500, Total deduction: $27500 in the first year)
| Date Placed in Service | 1st Year | 2nd Year | 3rd Year | 4th and Later Years |
| 2012-2013 | $ 25,000.00 + 50% of Residual | $ 5,100.00 | $ 3,050.00 | $ 1,875.00 |
Changing type of Tax deduction
What if you want to change from mileage to expenses, or from expenses to mileage deduction?
- If you use the standard mileage deduction of 56 cents, you can switch to expenses, but you will need to figure out what the basis (value) of the car is when you change. Very few people do this. You will need to calculate the depreciation from your previous mileage deduction and subtract that from your acquisition cost of the car. If you want to do this, I highly encourage you to seek professional tax help.
- If you do the straight-line depreciation, you can switch to the standard mileage deduction of 56 cents.
- If you do the depreciation method (recommended for owners of heavy SUVs with GWVR over 6000lb) that is not a straight line depreciation, you can’t switch to a mileage deduction later on.
Conclusion:
When it comes to tax time, you should only choose one of three options:
- Standard Mileage Deduction (easiest deduction and highest because of all the miles we drive)
- Lease Payments (for those who you rent a livery vehicle)
- Depreciation – for those who own a vehicle with a GWVR of over 6000lb or owns a fleet of vehicles
- New Uber Drivers will get up to a $800 bonus after signing up: Sign up for Uber.
- New Lyft Drivers will get up to $800 if you sign up here using this link.
