Buying A Car For The Rental Property

By Jason Watson, CPA
Posted Tuesday, October 21, 2025

Every so often we get this question: “Can I buy a car just for my rentals?” Ok,, that’s a lie. It’s not every so often- more like every day. The question is a good one for sure. The answer is more elusive.

The short answer is maybe. The long answer is maybe, with excellent documentation and a decent dose of risk tolerance.

Ordinary, Necessary, and Documented

As this chapter starts off, under IRC Section 162, business expenses including rental property expenses must be both ordinary (common and accepted in your line of work) and necessary (appropriate and helpful). The U.S. Supreme Court said it best in Welch v. Helvering, 290 U.S. 111 (1933): what’s “ordinary” depends on “life in all its fullness.” In other words, context matters, even in 1933.

Beyond ordinary and necessary, automobiles also get special scrutiny under IRC Section 274(d) because they’re “listed property.” The IRS assumes personal temptation is high on an automobile that can double for a grocery or kid mobile (shocker, right?). You must maintain contemporaneous records that include mileage logs (dates, odometer readings, trip purposes), and service records (maintenance, Jiffy Lube, etc.) to corroborate your amazing mileage log. The Cohan rule (estimating expenses when records are lost) doesn’t apply here. No log, no tax deduction.

In other words, you can’t rock up to the IRS and say, “I don’t need to track miles. They are all business miles for my rental properties.” Well, you can say that, but you still need adequate records or other sufficient evidence. IRC Section 274(d) reads in part-

(d) Substantiation required
No deduction or credit shall be allowed—
(1) under section 162 or 212 for any traveling expense (including meals and lodging while away from home),
(2) for any expense for gifts, or
(3) with respect to any listed property (as defined in section 280F(d)(4)), unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer’s own statement

In other words, do you need a mileage log if you claim the automobile is 100% for the rentals? Not necessarily (but it certainly helps). You just need adequate records or sufficient evidence to support the 100% rental use claim.

Some automobiles are designated nonpersonal by design. Treasury Regulations Section 1.274-5(k)(2)(ii) has a big list, and here are some of the highlights-

(C) Any vehicle designed to carry cargo with a loaded gross vehicle weight over 14,000 pounds.
(H) Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat.
(I) Dump trucks (including garbage trucks).
(J) Flatbed trucks.
(L) Passenger buses used as such with a capacity of at least 20 passengers.
(M) Qualified moving vans (as defined in paragraph (k)(4) of this section).

So, a general pickup truck or cargo van is not automatically considered nonpersonal, and as such you need to support your claim as we mentioned above.

Luxury Automobile Or Practical Tool

This is where white starts to turn gray (and possibly on your way to turning charcoal). Could a $100,000 SUV used only to haul linens and touch-up paint be “ordinary and necessary”? Possibly. Could a $150,000 SUV pass the same sniff test? Unlikely. A $250,000 supercar? While it certainly goes fast, it is a no go in the eyes of reasonableness.

Granted, there’s no IRS spreadsheet that says “ordinary stops at $97,500,” but examiners look at scale. Scale is another way of saying reasonableness. Two short-term rentals generating $60,000 a year in net income probably don’t need a six-figure truck to operate. The IRS might argue that a less expensive vehicle would be equally “appropriate and helpful.” Then again, the IRS can’t tell definitively how to spend your money on your business, but they can certainly make you jump through hoops (and likely make you wish you hadn’t tried).

Still, “scale” isn’t defined in the tax code. In Henry v. Commissioner, 36 T.C. 879 (1961), the Tax Court denied yacht expenses because they were “excessive in relation to the taxpayer’s trade or business,” yet it acknowledged that “what is ordinary depends upon the scope and nature of the enterprise.” Said differently, the IRS can raise an eyebrow and perhaps both of them, but there’s no bright-line rule. Most real estate investors and rental property owners can accept the risk- if documentation is bulletproof and the business purpose legitimate, it’s defensible even if it feels extravagant.

What if the rental property is a short-term rental with lots of turnover all year? What if your rental property is an 8-unit mini apartment building? What if you purchased four rental properties in one year that needed a lot of minor repairs? Or a major renovations? There are a zillion different combinations or examples to brighten you day and buttress your tax position on why a $100,000 truck is necessary.

This is the “long answer is maybe, with excellent documentation and a decent dose of risk tolerance” part we spoke about just a bit ago.

Automobile Depreciation Limits Still Apply

Even if you clear the IRC Section 162 hurdle, IRC Section 280F limits depreciation for passenger automobiles. Each year, the IRS publishes maximum allowable depreciation which is $20,200 first year for the 2025 tax year. Automobiles with a gross vehicle weight over 6,000 pounds such as large SUVs and heavy pickups can escape those caps and may qualify for Section 179 expensing or 100% bonus depreciation, or a combination.

So a $100,000 heavy SUV might see a full tax deduction, while a $60,000 small sedan crawls through limited annual depreciation.

Don’t forget that under IRC Section 168(k) (accelerated depreciation) and IRC Section 280F(b)(3) (listed property limitations), you can only claim bonus depreciation or Section 179 expensing if the business use exceeds 50% of total use in the year the automobile is placed in service. While we are on the topic, should business use drop to 50% or below, you must recapture depreciation or the Section 179 benefit as if you depreciated it using normal depreciation (listed property, such as automobiles, have a clawback similar to Section 179).

Automobile Losses Might Be Limited

All this works only if you are able to deduct your rental property losses through real estate professional status (REPS) or short-term rental loophole or you have other passive income to slap against it. In other words, if you increase rental losses with automobile expenses and depreciation, and those rental losses are limited by passive activity loss limits, then why bother? Sure, you’ll eventually get the tax deduction but it might take several years (or you sell the rental property).

Sidebar: Keep in mind that automobiles depreciate in value. As such, to buy one just for the tax deduction might be fool’s gold. Sure, time value of money can play into this just as much as the vanity of having your real estate operations own an automobile to tell your buddies about. A $100,000 SUV that is worth $65,000 3-4 years later, and that you only use or mostly use to conduct rental business might not make a lot of sense.

In Summary

Two questions to reflect upon-

1. Was the automobile truly necessary for the rental activity? (needs and wants occupy the same brain space, right?)
2. Is the cost proportionate to the business’s size and operations? (absolutely, without a doubt, Yes Yes)

These questions don’t have right answers. As we said before, it is very subjective. If your answers sound like “yes, I needed reliable transport for linens, supplies, and maintenance, and I have logs for every mile,” you have a reasonable case. If your answers sound like “damn it Jim, I am a landlord not a real estate mogul, but to keep up appearances I wanted something nice for the occasional Home Depot run,” you might want to cuff yourself to the desk and wait for the warrant. Ok, that was a bit much.

Some more reflection-

• If you want to claim 100% rental property use for the automobile, you don’t need a mileage log as we stated above. But you will need to support your tax position with a contemporaneous record such as a log, diary, trip sheet or electronic recording (such as MileIQ or similar phone app).
• Ideally for 100% rental property use, you have an LLC or some other entity that owns the rental properties also own the automobile. This just adds to your claim. If you have several rental properties all owned separately by LLCs with a real estate holding company owning the subsidiary LLCs, then the holding company should title the automobile.
• If you want to claim less than 100% rental property use, then a formal mileage log plus third-party corroboration is necessary.

See our automobile deductions in rentals section for other information.