When a partner uses a vehicle for partnership business, the deduction depends on who owns the vehicle and who pays the expenses:

1️⃣ If the partnership owns the vehicle

This is the simplest situation.

✔ Partnership deducts the expenses

The partnership deducts:

• Gas
  
  

• Repairs
  
  

• Insurance
  
  

• Depreciation (MACRS or §179/bonus)
  
  

• Lease payments (if leased)
  
  

• Mileage (if using standard mileage method)
  
  

✔ Partner does NOT deduct anything personally

All tax effects flow through the K-1 as partnership deductions.

✔ Personal use must be allocated

If a partner uses the partnership vehicle for personal reasons, the personal-use percentage must be:

• Treated as guaranteed payment income to the partner
  
  

• Reported on Schedule K-1
  
  

2️⃣ If the partner owns the vehicle (most common)

Partners frequently use their own cars for business travel.
In this case:

✔ The partner can deduct vehicle expenses only if the partnership reports reimbursement or guaranteed payments properly.

There are two correct ways:

Method A: The partnership reimburses the partner (best method)

If the partnership reimburses the partner for business mileage or actual expenses under an Accountable Plan, then:

✔ Partnership deducts:

• Mileage × IRS rate (e.g., mileage rate for the year)
  or
  
  

• Actual expenses submitted by the partner
  
  

✔ Partner:

• Does not report the reimbursement as income
  
  

• Does not deduct anything on their personal return
  
  

• Must keep mileage logs and receipts
  
  

This is the recommended IRS-compliant method.

Method B: The partnership does NOT reimburse & the partner deducts via guaranteed payment

If the partner pays for their own auto expenses and the partnership does not reimburse:

✔ The partnership must treat the expense as a guaranteed payment

The partnership should:

1. Record a guaranteed payment equal to the deductible portion of vehicle expenses
   
   

2. Deduct the guaranteed payment
   
   

3. Report the amount on the partner’s Schedule K-1 (Box 4)
   
   

✔ Partner:

• Includes the guaranteed payment as income
  
  

• Deducts the vehicle expense as part of self-employed business expenses
  (Indirectly reducing the guaranteed payment income)
  
  

❌ IMPORTANT:

Because of the Tax Cuts & Jobs Act (TCJA), partners cannot deduct unreimbursed partnership expenses as miscellaneous itemized deductions.
The partnership must treat them as guaranteed payments or reimburse them.

3️⃣ Partners Cannot Take “Employee” Auto Deductions

Because partners are NOT employees:

• No W-2
  
  

• No pre-tax payroll deductions
  
  

• No employer-provided vehicle exclusion
  
  

• No accountable plan unless it’s partnership → partner, not employer → employee
  
  

4️⃣ Standard Mileage vs. Actual Expenses for Partners

Partners may use:

✔ Standard mileage rate

Or

✔ Actual expenses (gas, repairs, insurance, depreciation)

But only if they:

• Own or lease the vehicle
  
  

• Use it for partnership business
  
  

• Properly track mileage
  
  

• Have the partnership report reimbursement or guaranteed payment
  
  

5️⃣ Example

Scenario:

Partner drives 8,000 business miles for the partnership.

If reimbursed under accountable plan:

• Partnership pays: 8,000 × IRS rate
  
  

• Partnership deducts full amount
  
  

• Partner has NO income and NO deduction
  
  

If not reimbursed:

• Partnership records guaranteed payment (e.g., $5,000)
  
  

• Partner includes $5,000 in income
  
  

• Partner deducts $5,000 as vehicle expenses
  
  

• Net result: Partner effectively deducts the expenses

📞 Contact Z Tax & Accounting to schedule a consultation today by calling (214) 699-4790. We provide secure, remote tax filing and accounting services for partnerships nationwide and internationally.

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