Business Vehicle Deductions for Contractors: Standard Mileage Rate vs. Actual Expenses
Under IRS guidance, business vehicle deductions for contractors can be figured with the standard mileage rate or with actual expenses, and the choice depends on the vehicle and on elections made in earlier years. For 2026, the IRS lists a business standard mileage rate of 72.5 cents per mile for January 1 through June 30 and 76 cents per mile for July 1 through December 31.
This article summarizes what the IRS says about each method, when the standard mileage rate cannot be used, how commuting is treated, and what records support the deduction. It covers federal rules only and does not address California rules.
Two Ways to Deduct Business Vehicle Costs
According to the IRS, a taxpayer can generally deduct car expenses using the standard mileage rate method or the actual expense method. Under the actual expense method, the taxpayer must determine what it actually costs to operate the car and count only the business-use portion. Parking fees and tolls for business use are deductible under either method.
For a contractor, the business use of vehicle costs can be significant, because trucks and vans move between the shop, supplier, and job sites every week. A contractor vehicle deduction starts with knowing which method applies to each vehicle. Which method applies, and what records support it, depends on the facts and on elections made in earlier years. Business vehicle deductions for contractors are easiest to support when the records are kept all year.
For the IRS explanation, see Topic no. 510, Business use of car.
2026 Standard Mileage Rates
The IRS publishes the 2026 standard mileage rate for business use as two figures, because the rates differ for the first and second halves of the year. The IRS lists 72.5 cents per mile for January 1 through June 30, 2026, and 76 cents per mile for July 1 through December 31, 2026.
The IRS states that use of the standard mileage rates is optional, and that taxpayers may instead calculate the actual costs of operating their vehicle. A contractor using the 2026 standard mileage rate should therefore apply the rate that matches the date of each business trip.
Choosing the Standard Mileage Rate: The First-Year Rule
For an owned car, the IRS says the taxpayer must choose the standard mileage rate in the first year the car is available for use in the business. In later years, the taxpayer can choose either the standard mileage rate or actual expenses. According to Publication 463, a taxpayer who uses the standard mileage rate for a year cannot deduct actual car expenses for that year.
For a leased car, the IRS states that a taxpayer who chooses the standard mileage rate must use it for the entire lease period, including renewals. This is the core of the standard mileage rate vs actual expenses decision: the choice made in the first year can limit what is available later.
When the Standard Mileage Rate Cannot Be Used?
The IRS lists situations in which a taxpayer cannot use the standard mileage rate. These include operating five or more cars at the same time, as in a fleet operation, claiming depreciation with a method other than straight-line, and claiming MACRS, a Section 179 deduction, or the special depreciation allowance on the car. The IRS also states that a taxpayer cannot use the standard mileage rate after claiming actual expenses for a leased car.
A contractor with several trucks should therefore review how many vehicles it operates at one time and what depreciation has already been claimed before relying on the standard mileage rate vs actual expenses comparison. A contractor vehicle deduction under the standard mileage rate is not available once one of these limits applies.
Actual Expenses for Contractor Trucks and Vans
Under the actual expense method, the IRS states that a taxpayer must determine what it actually costs to operate the vehicle and deduct the business-use portion. For a work truck used partly for personal driving, only the business portion of the costs is part of the truck deduction for contractors. The truck deduction for contractors also depends on keeping the business-use record current.
Because the business use of vehicle must be separated from personal use, and the business use of vehicle drives the amount deductible, a contractor using actual expenses needs records for the vehicle's total costs and for the miles driven for business. Parking fees and tolls for business use remain deductible under either method, according to the IRS.
Review Your Vehicle and Mileage Records
Tax Wealth Consultant (TWC) provides bookkeeping and tax-planning services for construction businesses in Irvine and Orange County. Schedule a consultation to review how your vehicle, mileage, and job records are organized.
taxwealthconsultant.com | (949) 409-8335
Commuting vs. Job Site Travel
Publication 463 states that the costs of getting to and from a main or regular workplace are commuting costs, and that commuting costs are not deductible, regardless of how far the home is from work. The publication also describes exceptions.
Temporary work location: when a taxpayer has a regular work location and commutes to a temporary one in the same trade or business, the daily round-trip transportation between home and the temporary location can be deducted. The IRS treats a work location as temporary when the work is realistically expected to last, and does last, one year or less.
Two places of work: when a taxpayer works at two places in one day, the cost of getting from one workplace to the other can be deducted.
Home office: when a home office qualifies as the principal place of business, daily transportation between home and another work location can be deducted.
Commuting vs job site travel is a fact-specific question for contractors, since a job may or may not be a temporary location. Whether a particular trip qualifies depends on the facts, so it should be reviewed with a tax professional.
Section 179 and Special Depreciation on Vehicles
Publication 946 states that for a passenger automobile, the total Section 179 deduction and depreciation deduction are limited, and that a taxpayer can elect the Section 179 deduction only if the property is used more than 50 percent for business. The publication lists the 2026 maximum Section 179 deduction as $2,560,000, and the cap for sport utility vehicles as $32,000 for 2026, compared with $31,300 for 2025. The Section 179 vehicle deduction is therefore shaped by both the dollar caps and the business-use test.
The publication also states that a 100 percent special depreciation allowance applies to qualified property acquired and placed in service after January 19, 2025. The Section 179 vehicle deduction and the special depreciation allowance both affect the standard mileage rate vs actual expenses choice, because claiming either one on a car means the standard mileage rate cannot be used. A Section 179 vehicle deduction should therefore be weighed against the mileage method before a vehicle is placed in service, and the truck deduction for contractors is part of that review.
Listed Property and Form 4562
The Instructions for Form 4562 define listed property to include passenger automobiles weighing 6,000 pounds or less and other transportation property that lends itself to personal use, such as pickup trucks and SUVs. The instructions also state that Form 4562 is required for depreciation on any vehicle or other listed property.
Form 4562 listed property reporting is therefore a recurring part of tax filing for a contractor that depreciates trucks or vans. The instructions state that listed property used 50 percent or less in a qualified business use is excluded from qualified property for the special depreciation allowance. Contractors should keep Form 4562 listed property records, including business-use percentages, with each vehicle file.
Records That Support Vehicle Deductions
The IRS states that a taxpayer must substantiate vehicle expenses by adequate records or by sufficient evidence. A contractor mileage log is a common way contractors keep that support, since it ties each trip to a job, a date, and the miles driven.
Fuel, repair, insurance, and loan records also belong in the file when the actual expense method is used, along with purchase and depreciation records for each truck. A contractor mileage log and the vehicle's cost records together show how much of the use was for business, which supports the contractor vehicle deduction and the Form 4562 listed property reporting.
Why Construction Bookkeeping Supports Vehicle Deductions?
Accurate bookkeeping lets a contractor assign vehicle costs to the right truck, separate business use from personal use, and tie mileage to jobs. Construction tax planning is easier when those records are kept as costs occur, rather than rebuilt when a return is prepared.
Construction tax planning can also include reviewing, before year-end, which method fits each vehicle, whether a vehicle purchase affects the choice, and how depreciation has been claimed. Whether a particular approach applies depends on the facts and on elections made in earlier years.
Tax Wealth Consultant (TWC) offers construction bookkeeping services. For related equipment topics, see the TWC article on construction equipment depreciation, bonus depreciation, and Section 179. More articles are available at https://www.taxwealthconsultant.com/.
Next Steps for Contractors in Irvine and Orange County
Contractors in Irvine and Orange County who use trucks and vans in the business should confirm which method each vehicle uses, what depreciation has been claimed, and how mileage and job records are kept. Construction tax planning should include this review before year-end. A tax advisor can help evaluate how the rules apply to specific facts, and TWC can review how a company's books show vehicle costs and business use.
Talk With Tax Wealth Consultant
Tax Wealth Consultant (TWC) provides bookkeeping and tax-planning services for construction businesses in Irvine and Orange County. Schedule a consultation to review how your vehicle, mileage, and job records are organized.
taxwealthconsultant.com | (949) 409-8335
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