Costs associated with getting from Point A to Point B are sometimes tax deductible, and it typically doesn't matter how you travel. In you rent a vehicle, this is just as much of an expense as if you had taken a bus, a cab or your own car. That's where the Internal Revenue Service's generosity ends, however. Only miles driven for specific purposes count toward travel and transportation deductions. The costs of commuting are never tax-deductible.
If you're self-employed, you might rent a vehicle because you're traveling for business and you need transportation when you get to your location, or because your own vehicle is in the shop for repairs and you need to get around in the meantime. If you fly from Milwaukee to Tampa on business, and if you don't mix business with pleasure while you're there, you can deduct everything you spend on the rental car. If you're using the vehicle in the course of conducting your daily business at home, however, you must subtract your personal driving from all the miles you put on the car. For example, if you logged 800 miles and 200 of them were related to your business, you can deduct 25 percent of the cost of the car. Business miles begin at your door if you keep a home office and provided you don't stop on the way to do personal errands. If you don’t keep a home office, your business miles begin when you leave your business location.
If you're not self-employed, there may be some occasions where your employer requires you to rent a car. If you work in Manhattan and don't keep a vehicle of your own, and if your boss wants you to go to Poughkeepsie to take care of something at a business location there, renting a vehicle to do so may be a work-related tax deduction. It depends on whether your employer reimburses you for the expense. If he does, it's his business deduction and you don't get to claim it on your own return.
You can also deduct transportation costs associated with medical care necessary for yourself, your spouse or your dependents. If you don't own a car and rent one for the express purpose of getting to a treatment location, you can itemize and claim the cost. Deducting the entire cost depends on the same rules that apply to work-related travel. If you stop halfway to your destination to visit a friend, this portion is personal mileage. You can only take a deduction for the percentage of the rental car cost associated with the primary purpose for your trip.
If you're self-employed, you can deduct the total of your allowable costs on Schedule C when you file your return. If you're claiming the cost as a work-related deduction or as a medical expense, however, you won't be able to deduct all you spend on qualifying miles. Work-related expenses are subject to a threshold of 2 percent of your adjusted gross income. It's even worse for medical expenses – the IRS imposes a 10 percent threshold for these deductions. This means you can only deduct expenses that exceed 2 percent or 10 percent of your AGI. If your AGI is $75,000, you'll need at least $7,500 in overall medical expenses to reach this limit, or $1,500 in eligible work-related costs. The good news is that both these types of deductions include several other expenses in addition to transportation. For example, health insurance premiums and doctor's bills qualify as medical deductions. You might be able to meet the thresholds when you add up all your qualifying costs.
- IRS: Employee Business Expenses
- IRS: Publication 529
- Fox Small Business Center: Business Travel Tax Tips for the Self Employed
- IRS: Medical and Dental Expenses
- IRS: Business Use of Car
- IRS. "Law Change Affects Moving, Mileage and Travel Expenses." Accessed Oct. 27, 2020.
- IRS. "Travel, Gift, and Car Expenses," Page 3. Accessed Oct. 27, 2020.
- IRS. "Travel, Gift, and Car Expenses," Page 4. Accessed Oct. 27, 2020.
- IRS. "Standard Mileage Rates." Accessed Oct. 27, 2020.
- IRS. "About Form 2106, Employee Business Expenses." Accessed Oct. 27, 2020.
- IRS. "Publication 529 (12/2019), Miscellaneous Deductions." Accessed Oct. 27, 2020.
- IRS. "Topic No. 510 Business Use of Car." Accessed Oct. 27, 2020.
- Congress. "H.R. 1," Page 1. Accessed Oct. 27, 2020.
- IRS. "Topic No. 502 Medical and Dental Expenses." Accessed Oct. 27, 2020.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.