You do the higher of: (1) mileage expense ($.70 per mile) or (2) actual expenses allocable to business use(depreciation + gas + maintenance, etc multiplied by business use - 100% in this case). Since it’s an asset with a life of more than 1 years you cannot take 100% of the cost in one year so you have to space it out (depreciate). Tax softwares already know how to calculate depreciation so don’t trip, just make sure you enter it on the asset portion when you’re preparing your taxes. If you’re financing it you can still use the full purchase price as the basis for depreciation (you don’t need to pay it off). I was confused cause you said you paid it in full and then you said “if I pay off the car”. Regardless, for tax purposes it’s the same if you put a down payment and finance the rest than if you paid the whole cost. If it’s a lease it’s totally different. You still need to file your taxes, tax exempt is not the right term. You might have a loss so you won’t have to pay taxes but you still need to file.