4. Local Transportation Expenses
This chapter discusses expenses you can deduct for local business transportation. This includes the cost of transportation by air, rail, bus, taxi, etc., and the cost of driving and maintaining your car.
Local transportation expenses include the ordinary and necessary costs of all of the following.
- Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Tax home is defined in chapter 1.
- Visiting clients or customers.
- Going to a business meeting away from your regular workplace.
- Getting from your home to a temporary workplace when you have one or more regular places of work. These temporary workplaces can be either within the area of your tax home or outside that area.
Local business transportation does not include expenses you have while traveling away from home overnight. Those expenses are deductible as travel expenses which are discussed in chapter 1. However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. See Car Expenses, later.
Illustration of local transportation. Figure B illustrates the rules for when you can deduct local transportation expenses when you have a regular or main job away from your home. You may want to refer to it when deciding whether you can deduct your local business transportation expenses.
Temporary work location. If you have one or more regular places of business away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location.
If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. It will not be treated as temporary after the date you determine it will last more than 1 year.
Temporary employment was formerly defined as employment on an irregular or short-term basis (generally a matter of days or weeks).
You can file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return, for any year that is affected by this change. However, you generally must file the amended return within three years from the time you filed the original return or within two years from the time you paid the tax, whichever is later.
If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. You may have deductible travel expenses as discussed in chapter 1.
No regular place of work. If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. These are nondeductible commuting costs.
Two places of work. If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. You cannot deduct them.
Armed Forces reservists. A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work.
You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. In this case, your transportation generally is a nondeductible commuting cost. However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work.
If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses.
If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. These expenses are discussed in chapter 1.
Commuting expenses. You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. These costs are personal commuting expenses. You cannot deduct commuting expenses no matter how far your home is from your regular place of work. You cannot deduct commuting expenses even if you work during the commuting trip.
Example. You had a telephone installed in your car. You sometimes use that telephone to make business calls while commuting to and from work. Sometimes business associates ride with you to and from work, and you have a business discussion in the car. These activities do not change the trip from personal to business. You cannot deduct your commuting expenses.
Parking fees. Fees you pay to park your car at your place of business are nondeductible commuting expenses. You can, however, deduct business-related parking fees when visiting a customer or client.
Advertising display on car. Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses.
Car pools. You cannot deduct the cost of using your car in a nonprofit car pool. Do not include payments you receive from the passengers in your income. These payments are considered reimbursements of your expenses. However, if you operate a car pool for a profit, you must include payments from passengers in your income. You can then deduct your car expenses (using the rules in this publication).
Hauling tools or instruments. Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car).
Union members' trips from a union hall. If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located.
Office in the home. If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business.)
If your home office does not qualify as a principal place of business, follow the general rules explained earlier in this chapter. Also, see Example 1 and Example 3, next.
Examples of deductible local transportation. The following examples show when you can deduct local transportation expenses based on the location of your work and your home.
Example 1. You regularly work in an office in the city where you live. Your employer sends you to a one-week training session at a different office in the same city. You travel directly from your home to the training location and return each day. You can deduct the cost of your daily round-trip transportation between your home and the training location.
Example 2. Your principal place of business is in your home. You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business.
Example 3. You have no regular office, and you do not have an office in your home. In this case, the location of your first business contact is considered your office. Transportation expenses between your home and this first contact are nondeductible commuting expenses. Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Although you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another.
Car Expenses
If you use your car for business purposes, you may be able to deduct car expenses. You generally can use one of two methods to figure your expenses: actual expenses or the standard mileage rate. In this publication, car includes a van, pickup, or panel truck. For the definition of car for depreciation purposes, see Car defined, under Actual Car Expenses, later.
You may be entitled to a tax credit for an electric vehicle or a deduction from gross income for a part of the cost of a clean-fuel vehicle that you place in service during the year. The vehicle must meet certain requirements, and you do not have to use it in your business to qualify for the credit or the deduction. However, you must reduce your basis for depreciation of the electric vehicle or clean-fuel vehicle property by the amount of the credit or deduction you claim. See Depreciation Deduction, later, under Actual Car Expenses. For more information on electric or clean-fuel vehicles, see chapter 12 of Publication 535.
Rural mail carriers. If you are a rural mail carrier, you may be able to treat the amount of qualified reimbursement you received as the amount of your allowable expense. Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the amount of reimbursement in your income. And, since the reimbursement equals the expense, you have no deduction to report on your tax return.
A qualified reimbursement is the amount of reimbursement you receive that meets both of the following conditions.
- It is given as an equipment maintenance allowance (EMA) to employees of the U.S. Postal Service.
- It is at the rate contained in the 1991 collective bargaining agreement. Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation.
See your employer for information on your reimbursement.
If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate.
Standard Mileage Rate
You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. For 2000, the standard mileage rate is 32½ cents a mile for all business miles. This rate is adjusted periodically.
If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. These expenses include depreciation or lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, and vehicle registration fees. See Choosing the standard mileage rate and Standard mileage rate not allowed, later.
You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. See chapter 6 for more information on reimbursements.
Choosing the standard mileage rate. If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then in later years, you can choose to use either the standard mileage rate or actual expenses.
If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after that date.
If you choose to use the standard mileage rate, you are considered to have chosen not to use the depreciation methods discussed later. This is because the standard mileage rate includes an allowance for depreciation that is not expressed in terms of years. If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation under Depreciation Deduction, later.
Standard mileage rate not allowed. You cannot use the standard mileage rate if you:
- Use the car for hire (such as a taxi),
- Operate two or more cars at the same time (as in fleet operations),
- Claimed a depreciation deduction using ACRS or MACRS (discussed later) in an earlier year,
- Claimed a section 179 deduction (discussed later) 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. (See Rural mail carriers, earlier.)
Two or more cars. If you own two or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. However, you may be able to deduct your actual expenses for operating each of the cars in your business. See Actual Car Expenses for information on how to figure your deduction.
You are not using two or more cars for business at the same time if you alternate using (use at different times) the cars for business.
The following examples illustrate the rules for when you can and cannot use the standard mileage rate for two or more cars.
Example 1. Marcia, a salesperson, owns a car and a van that she alternates using for calling on her customers. She can use the standard mileage rate for the business mileage of the car and the van.
Example 2. Tony uses his own pickup truck in his landscaping business. During the year, he traded in his old truck for a newer one. Tony can use the standard mileage rate for the business mileage of both the old and the new trucks.
Example 3. Chris owns a repair shop and an insurance business. He uses his pickup truck for the repair shop and his car for the insurance business. No one else uses either the truck or the car for business purposes. Chris can use the standard mileage rate for the business use of the truck and the car.
Example 4. Maureen owns a car and a van that are both used in her housecleaning business. Her employees use the van and she uses the car to travel to the various customers. Maureen cannot use the standard mileage rate for the car or the van. This is because both vehicles are used in Maureen's business at the same time. She must use actual expenses for both vehicles.
Interest. If you are an employee, you cannot deduct any interest paid on a car loan. This applies even if you use the car 100% for business as an employee.
However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). You cannot deduct the rest of the interest expense.
If you use a home equity loan to purchase your car, you may be able to deduct the interest. See Publication 936, Home Mortgage Interest Deduction, for more information.
Personal property taxes. If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. You can take this deduction even if you use the standard mileage rate or if you do not use the car for business.
If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C, Schedule C-EZ, or Schedule F (Form 1040). If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040).
Parking fees and tolls. In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. (Parking fees that you pay to park your car at your place of work are nondeductible commuting expenses.)
Sale, trade-in, or other disposition. If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. See Disposition of a Car, later.
Actual Car Expenses
If you do not choose to use the standard mileage rate, you may be able to deduct your actual car expenses.
If you qualify to use both methods, before choosing a method, you may want to figure your deduction both ways to see which gives you a larger deduction.
Actual car expenses include the costs of:
| Depreciation
|
Lease payments
|
Registration fees
|
| Licenses
|
Insurance
|
Repairs
|
| Gas
|
Oil
|
Tires
|
| Garage rent
|
Parking fees
|
Tolls
|
If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Continue to keep records, as explained later in chapter 5.
Business and personal use. If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. You can divide based on the miles driven for each purpose.
Example. You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense.
Employer-provided vehicle. If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. You cannot use the standard mileage rate. See Vehicle Provided by Your Employer in chapter 6.
Interest on car loans. If you are an employee, you cannot deduct any interest paid on a car loan. This interest is treated as personal interest and is not deductible. If you are self-employed and use your car in that business, see Interest, earlier, under Standard Mileage Rate.
Taxes paid on your car. If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. Enter the amount paid on line 7 of Schedule A (Form 1040).
You cannot deduct luxury or sales taxes, even if you use your car 100% for business. Luxury and sales taxes are part of your car's basis and may be recovered through depreciation. See Depreciation Deduction, later.
Fines and collateral. You cannot deduct fines and collateral you pay for traffic violations.
Casualty and theft losses. If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss that is not covered by insurance. See Publication 547, Casualties, Disasters, and Thefts (Business and Nonbusiness), for information on deducting a loss on your car.
Depreciation and section 179 deductions. Generally, the cost of a car, plus sales tax, luxury tax, and improvements, is a capital expense. Because the benefits last longer than one year, you generally cannot deduct a capital expense. However, you can recover this cost by claiming a section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code) and/or a depreciation deduction. By using depreciation, you recover the cost over more than one year by deducting part of it each year. The section 179 deduction and the depreciation deduction are discussed later.
Generally, there are limits on both of these deductions. Special rules apply if you use your car 50% or less in your work or business.
You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. If you claim either a section 179 deduction or depreciation using a method other than straight line for its estimated useful life in the year you first place a car in service, you cannot use the standard mileage rate on that car in any future year.
Car defined. For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) that is made primarily for use on public streets, roads, and highways. Its unloaded gross vehicle weight (gross vehicle weight in the case of a truck or van) must not be more than 6,000 pounds. A car includes any part, component, or other item that is physically attached to it or is usually included in the purchase price.
A car does not include:
- An ambulance, hearse, or combination ambulance-hearse used directly in a business, or
- A vehicle used directly in the business of transporting persons or property for pay or hire.
See Publication 946 for more information on how to depreciate your vehicle.
Section 179 Deduction
The section 179 deduction allows you to choose to treat part or all of the business cost of a car as a current expense rather than taking depreciation deductions over a specified recovery period.
Even though you may be able to claim a section 179 deduction, the limit on total section 179 and depreciation deductions (discussed later) may reduce or eliminate any benefit from claiming it.
You can claim the section 179 deduction only in the year you place the car in service. For this purpose, a car is placed in service when it is ready and available for a specific use, whether in trade or business, the production of income, a tax-exempt activity, or a personal activity. Even if you are not using the property, it is in service when it is ready and available for its specific use. A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business.
Example. In 1999 you bought a new car and placed it in service for personal purposes. This year, you began to use it for business. Changing its use to business use does not qualify the cost of your car for a section 179 deduction this year. However, you can claim a depreciation deduction for the business use of the car. See Depreciation Deduction, later.
Limits. There are limits on:
- The total cost of property qualifying for a section 179 deduction, and
- The total amount of the section 179 deduction plus the depreciation deduction (discussed later).
Limit on cost of qualifying property. Generally, you can choose to treat up to $20,000 of the cost of qualifying property as a section 179 deduction in 2000. (The amount increases each year up to 2003.) The yearly limit, however, depends on the percentage of business use, and you must use the property more than 50% for business to claim any section 179 deduction.
Example. Peter purchased a car this year for $14,500 and he used it 60% for business. The total cost of Peter's car that qualifies for the section 179 deduction is $8,700 ($14,500 cost × 60% business use). But see Limit on total section 179 and depreciation deductions, discussed next.
Limit on total section 179 and depreciation deductions. Generally, the total amount of section 179 and depreciation deductions that you can claim for a car that you place in service in 2000 cannot be more than $3,060. The limit is reduced if your business use of the car is less than 100%. See Depreciation Limits, later, for more information.
Example. Peter, in the previous example, had a car with a qualifying cost of $8,700 for his section 179 deduction. However, Peter is limited to a total section 179 deduction plus depreciation deduction of $1,836 ($3,060 limit × 60% business use).
Cost of car. For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car.
Basis of car. The amount of the section 179 deduction reduces your basis in your car. If you choose the section 179 deduction, you must reduce your basis in your car before you figure your depreciation deduction.
Choosing a section 179 deduction can give you a larger total deduction (depreciation plus section 179 deduction) in the first year. Not choosing it can give you a larger depreciation deduction in later years.
Example. On January 2, 2000, Stella bought a car for $12,000, including sales tax, to use exclusively in her delivery business. She paid $9,000 cash and received $3,000 in trade for her old car (also used in her business). Her adjusted basis in her old car was $3,000.
Only the $9,000 cash Stella paid qualifies for the section 179 deduction. If she does not choose section 179, her basis for depreciation is $12,000. The total of her section 179 and depreciation deductions is limited to $3,060, the first year maximum. If she does not choose section 179, her depreciation deduction, using the MACRS method (discussed later), is $2,400 [$12,000 basis × 20% (double declining balance rate)] from Table 3, explained later.
When to choose. If you want to take the section 179 deduction, you must make the choice in the tax year you both purchase the car and place it in service for business or work. Employees use Form 2106 to make this choice and report the section 179 deduction. All others use Form 4562. Make your choice by taking the deduction on the appropriate form and file it with your original tax return. If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). You cannot make the choice on an amended tax return filed after the due date of your return (including extensions). If you make the election on an amended return, attach the appropriate election form (2106 or 4562) to it and write Filed pursuant to section 301.9100-2 on the election statement. File the amended return at the same address you filed the original return. Once made, the choice can be changed only with the consent of the Internal Revenue Service (IRS).
Reduction in business use. To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. If your business use of the car is 50% or less in a later tax year during the recovery period, you have to include in income in that later year any excess depreciation. Any section 179 deduction claimed on the car is included in calculating the excess depreciation. For information on this calculation, see Excess depreciation later in this chapter under Car Used 50% or Less for Business.
Dispositions. If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any depreciation you claimed. For information on the disposition of depreciable property, see chapter 3 of Publication 544, Sales and Other Dispositions of Assets.
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