Personal Vehicle Used for Business Can Produce a Big Surprise Deduction

If you’ve used your personal vehicle for business—whether you’re a sole proprietor or you received mileage reimbursement from your S or C corporation—there may be a valuable tax deduction waiting for you.

When you use the IRS standard mileage rate (or when your corporation uses it to reimburse you), the mileage rate is not just a substitute for gas and maintenance. You’re also claiming “embedded depreciation”—a hidden deduction built into the mileage rate.

Here’s where the surprise comes in: when you sell or trade in that vehicle, you could be eligible for a significant additional deduction tied to that depreciation.

Let’s say you bought a $50,000 vehicle in 2021

and used it 80 percent for business. Over the past 4.5 years, you have accumulated nearly 40,000 business miles and deducted or been reimbursed based on the IRS mileage rate. You then sell the vehicle for $20,000.

By calculating the business-use portion of the sale and subtracting your embedded depreciation, you might unlock a $12,937 ordinary loss—fully deductible against your other income, under Section 1231 of the tax code.

This isn’t a tax loophole—it’s standard tax law, but it’s often overlooked. And it only applies if your vehicle was

· deducted or reimbursed using the standard mileage rate,

· used at least partially for business, and

· sold or traded in after accumulating depreciation.

We provide these articles as general information and not individualized tax advice.  They do not constitute a client relationship with you, and any information provided here should be applied at your own risk.