Vehicle Related Tax Breaks

Business related vehicle expenses can be deducted using the mileage rate method or the actual cost method, which includes total out of pocket expenses for fuel, insurance and repairs, plus depreciation.

Purchases of new or used vehicles may be eligible for Sec. 179 expensing. However, many rules and limits apply. For example, the normal Sec. 179 expensing limit generally applies to vehicles with a gross vehicle weight rating of more than 14,000 pounds. A reduced limit applies to vehicles, typically SUVs, rated at more than 6,000 pounds but no more than 14,000 pounds.

Vehicles rated at 6,000 pounds or less don’t satisfy the SUV definition and thus are subject to the passenger vehicle limits.

Also keep in mind that, if a vehicle is used for business and personal purposes, the associated expenses, including depreciation, must be allocated between deductible business use and nondeductible personal use. The depreciation limit is reduced if the business use is less than 100%. If business use is 50% or less, you can’t use Sec. 179 expensing or the accelerated regular MACRS; you must use the straight line method.

Entertainment, Meal and Transportation Deductions

Businesses used to commonly claim deductions for a wide variety of entertainment, meal and transportation expenses, as well as employee reimbursements of such expenses. But the TCJA changed some of the rules related to these expenses, and the OBBBA made some additional changes. Here’s a look at what’s deductible and what’s not:

  • Entertainment. The TCJA’s elimination of the deduction for entertainment expenses remains in place under the OBBBA.
  • Meals. Business related meal expenses, including those incurred while traveling, remain 50% deductible. Through 2025, the TCJA expanded the 50% disallowance rule to meals provided via an on premises cafeteria or otherwise on the employer’s premises for the convenience of the employer, and the deduction was scheduled to be eliminated after 2025. Such meals used to be 100% deductible. The OBBBA generally retains this deduction’s 2026 elimination, with some limited exceptions that will qualify for a 100% deduction. Meal expenses also generally can be 100% deducted if the meals are sold to employees.
  • Transportation. Transportation expenses for business travel are still 100% deductible, provided they meet the applicable rules. The TCJA eliminated employer deductions for the cost of providing qualified employee transportation fringe benefits, for example parking allowances, mass transit passes and van pooling. However, those benefits are still tax free to recipient employees, up to applicable limits. The OBBBA doesn’t change these rules. Before 2018, employees could also exclude from taxable income qualified bicycle commuting reimbursements, and this break was scheduled to return in 2026. However, the OBBBA eliminates it.