You can deduct expenses for a vehicle you use for your business. If you use the vehicle for both personal and business purposes, you can deduct only the costs for business use. Figure your business use percentage as:
Business miles you drove / (divided by) Total miles you drove in the year = Business use

Ex: If you drove a total of 10,000 miles during the year and your total number of business miles was 7,500, then you drove 75% of the miles for business:

7,500 (business miles) / 10,000 (total mileage) = .75 (or 75%) 

So you can deduct 75% of your expenses.

You can’t deduct commuting miles -- the distance you drive from home to work. However, you can deduct the cost of traveling from 1 business location to another.

Use the standard mileage rate or the actual expenses method to figure your expenses.

Standard Mileage Rate Method

If you use the standard mileage rate method, multiply the number of business miles you drove by the standard mileage rate. The standard mileage rate for 2012 is 55.5 cents per mile.

In addition to your standard mileage deduction, you can deduct the cost of parking fees and tolls you incur on business. However, you can't deduct the amount you pay for parking at your place of employment.

If you're self-employed, you can also deduct your car loan interest that’s related to your business use of the car. Ex: If you use your car 75% of the time for business, you can deduct 75% of the interest paid. However, if you're an employee, you can't deduct interest paid on a car loan.

You can also deduct the business portion of personal property taxes you pay on your vehicle. Personal property taxes are taxes you pay based upon the value, not the weight, of your vehicle. (Ex: city excise tax)

Actual Expenses Method

If you use the actual expenses method, deduct the actual expenses of:

•  Owning your car
•  Operating your car

Actual expenses include:

• License plates
• Gas and oil
• Tolls
• Insurance
• Garage rent
• Parking fees
• Registration fees
• Washing and polishing
• Repairs
• Tires

You can also deduct depreciation if you own the vehicle. If you lease a vehicle, you can deduct the lease payments related to the business use of your car. Ex: If your lease payments are $3,600 and you use the car 75% of the time for business, you can deduct $2,700.

Your vehicle's fair market value might be more than the amount allowed on the lease term’s first day. If so, subtract the lease-inclusion amount from the amount you can deduct as a lease payment. The fair market value must be no more than:

• $18,500 for passenger automobiles
• $19,000 for trucks or vans

This applies to leases beginning in 2012. For tables with lease-inclusion amounts, see IRS Publication 463: Travel, Entertainment and Gift Expenses.

You can't use the standard mileage rate if you:

• Used the actual expenses method in the first year you placed the car in service
• Use 5 or more vehicles in your business at the same time
• Claim depreciation deduction for the car using a method other than straight-line
• Claim Section 179 deduction on the car
• Claim actual expenses after 1997 for a car you leased
• Are a rural mail carrier who received a qualified reimbursement

Recordkeeping

Keep these items for expenses incurred to support the deductions you claim:

• Receipts
• Canceled checks
• Bills

You should also keep a mileage log to track your mileage for the year. For each trip, log the:

• Date
• Miles traveled
• Destination
• Trip’s purpose:
  • Business
  • Personal use
  • Commute to work