Actual Expense Method

The actual expense method is the alternative to the IRS standard mileage rate. Instead of multiplying business miles by 72.5¢, you add up the actual costs of operating your vehicle and deduct the business-use percentage of that total.

What you add up. Per Rev. Proc. 2019-46 and IRS Publication 463:

• Gasoline and oil
• Repairs and maintenance (oil changes, brakes, tires, batteries)
• Insurance
• Registration fees and personal property tax (business portion)
• Lease payments (subject to the §280F inclusion amount for luxury leases)
• Depreciation under MACRS — or §179 or bonus depreciation on the year of purchase
• Garage rent, if any
• Interest on the auto loan (self-employed only)

You then multiply the total by your business-use percentage (business miles ÷ total miles). Parking and tolls are deductible separately under either method.

When actual wins. Higher-cost vehicle, lower miles. A $70,000 SUV driven 12,000 business miles per year, in its first year of depreciation, can deliver a deduction many multiples of the standard rate — particularly with the OBBBA-restored 100% bonus depreciation under IRC §168(k) for property placed in service after January 19, 2025 (OBBBA §70301), and the heavy-SUV §179 cap of $31,300 for vehicles over 6,000 lb GVWR.

The first-year election trap. Under Rev. Proc. 2019-46 §4.04, your election in the first year a vehicle is placed in business service controls your future options. If you pick the standard mileage rate in year one, you may switch between methods in later years (using straight-line depreciation if you switch to actual). If you pick actual in year one, you are locked into actual for that vehicle’s life. This is the trap that catches taxpayers who took §179 or bonus depreciation in year one and then realize standard mileage would have been bigger over the long haul.

Worked example. Riley, a Lyft driver, drives a paid-off 2019 sedan: 28,000 business miles in 2026.

• Standard method: 28,000 × $0.725 = $20,300
• Actual method: $4,200 gas + $900 maintenance + $1,400 insurance + $300 registration + ~$1,000 depreciation, total $7,800 × business-use % (28,000 / 32,000 = 87.5%) = $6,825

Standard wins by $13,475. For high-mileage drivers with low-cost vehicles, this is the typical result.