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Yes, both vehicle insurance and depreciation can be allowed as expenses for tax purposes if your vehicle is used for both personal and business use. However, there are crucial rules and limitations you need to follow.

Vehicle Insurance as an Expense

• You can deduct the business portion: If you use your vehicle for both personal and business purposes, you can only deduct the percentage of your auto insurance premiums (and other vehicle expenses) that is attributable to your business use. For example, if you use your vehicle 60% for business and 40% for personal activities, you can deduct 60% of the insurance cost.

   

   

• Method Matters:

  • Actual Expense Method: If you choose to deduct your actual vehicle expenses, you will include your insurance premiums, along with gas, oil, repairs, maintenance, registration fees, and depreciation (or lease payments). You then multiply the total of these expenses by your business-use percentage (business miles / total miles).
     
  • Standard Mileage Rate Method: If you choose to use the standard mileage rate (a cents-per-mile rate set by the IRS annually), you cannot also deduct actual expenses like insurance, gas, oil, or depreciation. The standard mileage rate is designed to cover these costs. You can still deduct business-related parking fees and tolls in addition to the standard mileage rate.
     

• Record Keeping is Key: Regardless of the method you choose, you must keep detailed and accurate records of your mileage, separating business miles from personal miles. This is essential for determining your business-use percentage.

Vehicle Depreciation for Tax Purposes

Yes, the vehicle can be depreciated for tax purposes if it's used for business, even if it's also used for personal use.

Requirements for Depreciation:

• The vehicle must be owned by you.
• It must be used in your business or income-producing activity.
• It must have a determinable useful life and be expected to last more than one year.

• Just like with insurance, you can only depreciate the business-use portion of the vehicle's cost. You must keep records to prove your business-use percentage.
• Actual expense method: The IRS allows you to depreciate the vehicle using the Modified Accelerated Cost Recovery System (MACRS), which typically classifies vehicles as five-year property.
• Standard Mileage Rate Method: If you use the standard mileage rate, depreciation is already built into the rate, so you cannot deduct it separately.
• To accurately determine your business-use percentage for both insurance and depreciation, you need to maintain a reliable mileage log.  For rideshare/delivery, session-based logging or a mileage tracking app is highly recommended.
• Choosing Your Method: You generally have to choose either the standard mileage rate or the actual expense method for a vehicle in the first year it's placed in service for business. If you use the standard mileage rate in the first year, you can switch to the actual expense method in later years. If you choose actual expenses in the first year, you generally cannot switch to the standard mileage rate for that vehicle in subsequent years. It's often beneficial to calculate both ways in the first year to see which yields a higher deduction.

Standard Mileage vs. Actual Expenses: Getting the Biggest Tax Deduction Please refer to this link for more info.

@Letty7 Thanks for the question!!