Can You Deduct Car Rental Expenses as Unreimbursed Business Expenses on Your Income Tax?

Legitimate unreimbursed business expenses are deductible items under the guidelines established by the Internal Revenue Service. The IRS considers car rental expenses as a travel expense. You are typically able to claim such expenses as business expenses if the travel meets all of the IRS requirements. The primary requirements deal with the purpose of the trip and the distance you travel.

The reason for the trip must be business-related, and the expenses must be typical for your type of business. Expenses cannot be unnecessarily lavish. Your reason for the trip may be to call on customers, attend a business-related seminar, report to a temporary work location or any other legitimate business reason.

The IRS defines your tax home as the city and its suburbs where your regular or primary work site is located. If you do not have such a work site, your home's location determines your tax home. If you have neither a permanent home nor a primary work site, you cannot deduct travel expenses because the IRS considers you to never travel away from home. To qualify for a travel expense deduction, your trip must take you away from your tax home for more than a standard workday, requiring you to rest or sleep while you are traveling.

Suppose your home is in Houston, but your job is in Dallas. You fly to Dallas and rent a car. This expense is not deductible, because Dallas is your tax home. Car rental expenses in Houston would likewise be non-deductible, because they are personal expenses. Commuting expenses between your home and your primary place of business are also personal, non-deductible expenses. However, commuting between your primary work site and a temporary work location are deductible, as are commuting expenses between your primary work location and a second job when you must work at both locations on the same day.

If you combine business with pleasure, you can only deduct the car rental costs that are work-related. For example, you fly from Omaha to Los Angeles and rent a car. You spend three days calling on clients. Your spouse joins you on the fourth day, and you spend another three days sightseeing. You pay rental fees for six days, but you can deduct only half of the bill since only half of the time was business-related.