If you use a vehicle for business, the IRS gives you two ways to deduct it: the standard mileage rate and the actual expense method. The one that saves you more money depends on your specific situation — and the choice has permanent consequences for that vehicle, so it’s worth thinking through before you file.

The Standard Mileage Rate

The standard mileage rate lets you deduct a flat rate per business mile driven, set by the IRS each year (72.5 cents per mile in 2026). You multiply your total business miles by the rate, and that’s your deduction.

What it covers: The rate is designed to account for all vehicle operating costs — gas, oil, tires, insurance, maintenance, registration, and depreciation. You don’t separately deduct those costs.

What you need: A contemporaneous mileage log recording the date, destination, business purpose, and miles for every business trip.

Calculation example:

• 12,000 business miles × $0.725 = $8,700 deduction

Who it’s best for: Freelancers with fuel-efficient, lower-cost, or older vehicles, or anyone who wants minimal recordkeeping.

The Actual Expense Method

The actual expense method lets you deduct the real costs of operating your vehicle, proportional to your business use.

Eligible expenses:

• Gasoline
• Oil and fluids
• Tires
• Insurance
• Registration and licensing fees
• Repairs and maintenance
• Car washes
• Garage rent
• Lease payments (if leasing)
• Depreciation (if you own the vehicle)

How business use percentage works: Divide your business miles by your total miles for the year. Example: 12,000 business miles ÷ 18,000 total miles = 66.7% business use

Multiply every expense by that percentage to get the deductible portion.

Depreciation: For owned vehicles, depreciation is the biggest component of the actual expense calculation. The IRS caps annual depreciation on passenger automobiles (called the luxury auto limits). For 2026, the first-year cap is approximately $12,400 without bonus depreciation, or higher with Section 179/bonus depreciation elections. Depreciation is tracked on Form 4562.

Calculation example:

• Annual vehicle expenses: $9,000 (gas, insurance, maintenance, registration)
• Depreciation: $5,000
• Total costs: $14,000
• Business use: 66.7%
• Deduction: $14,000 × 66.7% = $9,338

Who it’s best for: Freelancers with high-mileage, expensive, or high-maintenance vehicles. Also useful if you have a low personal-use percentage (business use is 80%+) and significant depreciation to claim.

Side-by-Side Comparison

Factor	Standard Mileage	Actual Expense
Recordkeeping	Mileage log only	All vehicle expense receipts + mileage log
Complexity	Low	Higher
Best vehicle type	Efficient, lower-cost	Expensive, high-maintenance
Depreciation included?	Yes (built into rate)	Calculated separately
Business % required?	Only for log	Required for all expenses
Can switch later?	Yes, to actual	Not if you used MACRS depreciation

The Rules on Switching

This is the most important thing to understand about this choice:

• If you start with the standard mileage rate, you can switch to actual expenses in a later year (though not to MACRS depreciation — you’d use straight-line depreciation).
• If you start with actual expenses and claim MACRS depreciation or Section 179, you cannot switch to the standard mileage rate for that vehicle in future years.

This asymmetry means that if you’re unsure, starting with the standard mileage rate gives you more flexibility. You can always switch to actual expenses later if it becomes more advantageous.

Electric and Hybrid Vehicles

For electric vehicles, the actual expense method may be more favorable because the fuel cost (electricity) is lower, but the depreciation on a more expensive vehicle can be significant. Run the numbers both ways in the first year before committing.

How to Decide

Step 1: Calculate your deduction both ways for the year.

• Standard rate: business miles × $0.725
• Actual: total vehicle costs × business use %

Step 2: Factor in complexity. The actual expense method requires tracking every receipt for every vehicle expense all year. If the difference is $300, that may not be worth the additional work.

Step 3: Consider future years. If you’re going to own this vehicle for five more years, the depreciation recapture implications of the actual expense method matter.

For most freelancers with typical vehicles and moderate business miles, the standard mileage rate is the right call: simpler, audit-proof (if you maintain a mileage log), and usually competitive with actual expenses.

numlr tracks your business mileage automatically so you always have the data you need for either method — and can compare both calculations before you file. Try numlr free.