Can You Sell Your Car to Your Business

Selling your car to your business is possible, but it requires careful planning to avoid tax pitfalls and legal issues. When done correctly, it can offer tax benefits and streamline vehicle ownership for business use.

So, you’ve got a car—maybe it’s your daily driver, maybe it’s a weekend cruiser—and you’re wondering: Can I sell my car to my business? It’s a smart question, especially if you’re running a small business and want to simplify vehicle ownership, maximize tax benefits, or just keep things neat and tidy on paper.

The short answer? Yes, you can sell your car to your business. But—and this is a big but—it’s not as simple as handing over the keys and calling it a day. There are rules, tax implications, and paperwork involved. Done wrong, it could trigger an audit or cost you money. Done right, it can be a strategic move that benefits both you and your company.

Think of it like this: your business is a separate legal entity (even if you’re the only one running it). So when you sell your car to that entity, it’s like one person selling to another—except both “people” are connected to you. That means the transaction has to be arms-length, fair, and well-documented. The IRS watches these kinds of moves closely because they can be used to shift income, hide assets, or claim improper deductions.

But don’t let that scare you off. With the right approach, selling your car to your business can be a win-win. Your business gets a reliable vehicle it can depreciate and deduct expenses for, and you get cash (or a receivable) from the sale. Plus, it clears up any confusion about who owns what—especially helpful if you’re ever audited or looking to sell the business down the road.

In this guide, we’ll walk you through everything you need to know: the legal basics, tax consequences, how to value the car, what paperwork to file, and when it might make more sense to skip the sale altogether. Whether you’re a sole proprietor, LLC owner, or S-corp shareholder, this guide will help you decide if selling your car to your business is the right move—and how to do it the right way.

Key Takeaways

• It’s legally allowed: You can sell your personal car to your business, but the transaction must be fair and documented.
• Fair market value matters: The sale price should reflect what the car is worth on the open market to avoid IRS scrutiny.
• Tax implications vary: Depending on your business structure, you may face capital gains, depreciation recapture, or sales tax.
• Proper documentation is essential: A bill of sale, title transfer, and journal entry are required to keep records clean.
• Business use determines deductions: Only the portion of vehicle use for business can be deducted after the sale.
• Consider alternatives: Leasing or reimbursing mileage might be simpler than a full sale.
• Consult a professional: Talk to an accountant or tax advisor before making the move.

Is It Legal to Sell Your Car to Your Business?

Yes, it’s completely legal to sell your personal car to your business—but only if the transaction is legitimate and follows the rules. The key word here is legitimate. The IRS and state authorities expect that any sale between you and your business is done at fair market value, with proper documentation, and for a valid business reason.

Let’s break that down.

First, your business must be a separate legal entity. That means if you’re a sole proprietor operating under your own name with no formal structure, selling your car to “your business” doesn’t really make sense—because legally, there’s no separation between you and the business. In that case, the car is already considered a business asset if you use it for work, and a formal sale isn’t necessary.

But if your business is structured as an LLC, S-corporation, C-corporation, or partnership, then it is a separate entity. That means you can sell assets—including a car—to it, just like you would sell to any other buyer.

The catch? The sale must be arms-length. That means the price should reflect what a willing buyer would pay a willing seller in an open market. If you sell your car to your business for $1, when it’s worth $10,000, the IRS will notice. They may reclassify the transaction as a gift or a disguised dividend, which can lead to penalties, back taxes, or disallowed deductions.

So how do you prove it’s a real sale? Documentation. You’ll need a bill of sale, a title transfer, and a journal entry in your business books. We’ll cover those in detail later, but for now, just know that paperwork is your friend.

Also, your business should have a legitimate need for the car. If you’re selling a luxury sports car to a landscaping company that only does residential mowing, that raises red flags. The vehicle should make sense for the type of work your business does.

In short: yes, it’s legal—but only if it’s real, fair, and documented.

Why Would You Want to Sell Your Car to Your Business?

So why go through all this trouble? Why not just keep the car in your name and deduct mileage or lease payments? There are several good reasons why business owners choose to sell their personal vehicles to their companies.

1. Simplify Ownership and Accounting

One of the biggest headaches for small business owners is keeping personal and business finances separate. If you’re using your personal car for work, you might be tracking mileage, logging trips, and trying to calculate deductions. It’s time-consuming and easy to mess up.

By selling the car to your business, ownership transfers cleanly. The vehicle is now a company asset, and all expenses—gas, maintenance, insurance, depreciation—are clearly business-related. This makes accounting simpler and reduces the risk of errors during tax season.

2. Maximize Tax Deductions

When a car is owned by your business, you can deduct a wider range of expenses. Instead of just mileage (which is currently 67 cents per mile in 2024), you can deduct actual costs like fuel, repairs, insurance, registration, and—most importantly—depreciation.

Depreciation allows you to write off the cost of the vehicle over its useful life (typically 5 years for cars). If you sell your car to your business for $20,000, the company can depreciate that amount, reducing taxable income each year. That’s a powerful tax tool, especially if your business is profitable.

3. Improve Cash Flow (for the Business)

If your business needs a reliable vehicle but doesn’t have the cash to buy one outright, you can sell your personal car to it. The business can pay you over time (with interest, to keep it arms-length), giving it the transportation it needs without a big upfront cost. This can be especially helpful for startups or seasonal businesses.

4. Prepare for Business Growth or Sale

If you’re planning to scale your business or eventually sell it, having clean, professional records is crucial. A car owned by the business looks more legitimate to investors, lenders, or buyers than one owned personally. It shows that the company is well-organized and treats assets properly.

5. Avoid Personal Liability (in Some Cases)

While this isn’t a guarantee, having the car owned by the business can offer a layer of separation. If the vehicle is involved in an accident during business use, liability may fall more on the company than on you personally—especially if your business is structured as an LLC or corporation. This isn’t foolproof, but it’s one more reason to consider the transfer.

How to Value the Car for Sale

One of the most important steps in selling your car to your business is setting the right price. Too high, and the IRS may say you’re overstating the asset’s value. Too low, and they may treat it as a gift or dividend.

The goal is to use fair market value (FMV)—what the car would sell for on the open market to an unrelated buyer.

How to Determine Fair Market Value

There are several reliable tools to help you find FMV:

– Kelley Blue Book (KBB): Enter your car’s make, model, year, mileage, condition, and features. KBB will give you a range for “private party sale” value—this is what you’d get selling to an individual, which is closest to your situation.
– Edmunds True Market Value (TMV): Similar to KBB, but often more detailed about regional pricing.
– NADA Guides: Popular with dealers, but useful for private sellers too. NADA tends to be slightly higher than KBB.
– Local Listings: Check Facebook Marketplace, Craigslist, or Autotrader for similar cars in your area. Adjust for condition and mileage.

Let’s say you have a 2019 Honda Accord with 60,000 miles in good condition. KBB might value it at $18,000 private party. That’s your starting point.

Adjust for Condition and Extras

If your car has aftermarket upgrades (like a premium sound system or custom wheels), you can add a small amount—but don’t overdo it. Most buyers won’t pay extra for mods unless they’re highly desirable.

Conversely, if the car has mechanical issues, body damage, or high mileage, reduce the price accordingly. Be honest. The IRS can request documentation, and inflated values won’t hold up.

Get a Professional Appraisal (Optional)

For high-value vehicles (say, over $25,000), consider getting a written appraisal from a certified appraiser. This adds credibility and can protect you in case of an audit. It’s an extra cost—usually $100–$300—but worth it for expensive cars.

Document Your Valuation

Save screenshots of KBB, Edmunds, or local listings. Keep notes on why you chose the final price. If the IRS ever questions the sale, you’ll have proof that you did your due diligence.

Tax Implications of Selling Your Car to Your Business

This is where things get tricky—and why so many business owners consult a tax pro before making the move. The tax consequences depend on several factors: your business structure, how the car was used before the sale, and how it will be used after.

For Sole Proprietors and Single-Member LLCs

If you’re a sole proprietor or single-member LLC (disregarded entity), the tax treatment is different because there’s no legal separation between you and the business.

In this case, selling your car to your business is essentially a reclassification of the asset. The IRS treats it as if the car was always owned by the business, as long as it’s used for business purposes.

You won’t owe capital gains tax on the sale, but you will need to start depreciating the car as a business asset. If you previously claimed mileage deductions, you’ll need to stop and switch to actual expense method.

Important: If you used the car for personal purposes before the sale, you may owe tax on the “gain” attributable to personal use. This is rare but possible if the car appreciated significantly (e.g., a classic car).

For S-Corporations and Multi-Member LLCs

Here, the business is a separate taxpayer. When you sell your car to the S-corp or multi-member LLC, it’s a real transaction.

You may owe capital gains tax if the sale price is higher than your original purchase price (adjusted for improvements). For example, if you bought the car for $15,000 and sell it to your business for $20,000, you have a $5,000 gain. That gain is taxable on your personal return.

However, if the car has depreciated (which most do), you likely won’t owe capital gains. In fact, you might have a loss—but you can’t deduct personal losses on business sales.

The business, on the other hand, gets to depreciate the purchase price. So if your S-corp buys the car for $20,000, it can write off that amount over 5 years using MACRS (Modified Accelerated Cost Recovery System).

Sales Tax Considerations

In most states, selling a car to your business triggers sales tax. Yes, even though it’s related parties. The tax is usually based on the sale price or FMV, whichever is higher.

Some states offer exemptions for business-to-business transfers, but very few allow exemptions for owner-to-business sales. Check with your state’s DMV or Department of Revenue.

For example, in California, you’d pay sales tax on the full sale price unless the business is registered and the transfer is part of a reorganization (which this usually isn’t).

Depreciation Recapture (Advanced Topic)

If you previously claimed depreciation on the car (e.g., you used the actual expense method while it was in your name), selling it to your business could trigger depreciation recapture. This means the IRS treats the depreciation you claimed as taxable income.

This is complex and rare for most small businesses, but it’s something a tax advisor should review.

Step-by-Step: How to Sell Your Car to Your Business

Ready to make the move? Here’s a clear, step-by-step guide to selling your car to your business the right way.

Step 1: Confirm Your Business Structure

Make sure your business is a separate legal entity (LLC, S-corp, etc.). If it’s a sole proprietorship with no formal structure, skip the sale—just start using the actual expense method for deductions.

Step 2: Determine Fair Market Value

Use KBB, Edmunds, or local listings to find the car’s FMV. Document your research.

Step 3: Draft a Bill of Sale

This is a legal document that proves the transaction. Include:
– Date of sale
– Names and addresses of buyer (business) and seller (you)
– Vehicle details (VIN, make, model, year, mileage)
– Sale price
– Signatures

You can find free templates online or use your state’s DMV form.

Step 4: Transfer the Title

Visit your local DMV to transfer the title from your name to your business’s name. You’ll need:
– Signed title (signed over to the business)
– Bill of sale
– Proof of insurance in the business name
– Payment for title transfer and registration fees

Some states require a smog check or odometer disclosure.

Step 5: Update Insurance

Contact your insurance agent. The policy must now be in the business’s name, with the business listed as the owner. You may need commercial auto insurance, especially if the car will be used by employees.

Step 6: Record the Transaction in Your Books

In your accounting software (QuickBooks, Xero, etc.), record:
– A debit to the business’s “Vehicle” asset account for the purchase price
– A credit to “Cash” or “Loan Payable to Owner” (if you’re financing the sale)
– If you’re paid in cash, credit “Owner’s Equity” or “Capital Contribution”

Example:
– Debit: Vehicle Asset – $20,000
– Credit: Cash – $20,000

If the business pays you over time:
– Debit: Vehicle Asset – $20,000
– Credit: Loan Payable to Owner – $20,000

Step 7: Start Depreciating the Vehicle

Work with your accountant to set up depreciation. Most businesses use the 200% declining balance method over 5 years. In year one, you might deduct 20% of the cost (or more with bonus depreciation).

Step 8: Keep Records

Save all documents: bill of sale, title, insurance, loan agreement (if applicable), and depreciation schedule. Keep them for at least 7 years.

When NOT to Sell Your Car to Your Business

As great as it sounds, selling your car to your business isn’t always the best move. Here are situations where you might want to think twice.

1. The Car Is Mostly for Personal Use

If you only use the car 30% for business, the tax benefits are limited. You can only deduct 30% of expenses and depreciation. Plus, the IRS may question why the business owns a car that’s mostly personal.

2. You’re Planning to Sell the Car Soon

If you’ll upgrade or sell the car within a year, the hassle of transferring ownership may not be worth it. Just keep it personal and use the standard mileage rate.

3. Your Business Is Unprofitable

Depreciation only helps if you have taxable income to offset. If your business isn’t making money, you won’t benefit from deductions now—and may lose them to carryforward limits.

4. You’re Not Ready for the Paperwork

This isn’t a “set it and forget it” move. You’ll need to track expenses, file depreciation schedules, and possibly deal with sales tax. If you’re already overwhelmed with bookkeeping, consider alternatives.

5. You’re in a High-Risk Industry

If your business involves high liability (e.g., delivery, transportation), owning the car personally and reimbursing mileage might offer better liability protection. Consult a lawyer.

Alternatives to Selling Your Car to Your Business

Before you go through the hassle of a sale, consider these simpler options:

1. Use the Standard Mileage Rate

The IRS allows you to deduct 67 cents per mile (2024) for business use. Just log your trips and keep a mileage tracker. No need to transfer ownership.

2. Reimburse Yourself for Actual Expenses

Pay for gas, repairs, and insurance out of your business account, then reimburse yourself. Keep receipts and track business vs. personal use.

3. Lease a Vehicle Through Your Business

Lease a new car in the business name. Payments are fully deductible, and you avoid the complexities of ownership transfer.

4. Use a Company Car Allowance

Some businesses give owners a fixed monthly car allowance. It’s taxable income, but simple to manage.

Final Thoughts

Selling your car to your business can be a smart financial move—if done correctly. It simplifies accounting, unlocks tax deductions, and creates a cleaner separation between personal and business assets. But it’s not without risks. The IRS watches these transactions closely, and mistakes can lead to audits, penalties, or disallowed deductions.

The key is to treat the sale like any other business transaction: fair, documented, and justified. Use fair market value, keep detailed records, and consult a tax professional before making the leap.

If your business is growing, profitable, and uses the car regularly, the sale could pay off in the long run. But if the car is mostly personal or your business is still finding its footing, simpler alternatives like mileage reimbursement or leasing might be the better choice.

At the end of the day, the goal is to run your business efficiently—not to create unnecessary complexity. So weigh the pros and cons, do your homework, and make the decision that works best for you.

Frequently Asked Questions

Can I sell my car to my business if I’m a sole proprietor?

If you’re a sole proprietor with no formal business structure, there’s no legal separation between you and your business. In this case, you don’t need to “sell” the car—just start using the actual expense method for deductions.

Will I pay taxes when I sell my car to my business?

It depends. If your business is a separate entity (like an S-corp), you may owe capital gains tax if the sale price exceeds your original cost. Sales tax may also apply in most states.

How do I prove the sale price is fair?

Use Kelley Blue Book, Edmunds, or local listings to determine fair market value. Save screenshots and notes to document your valuation in case of an audit.

Can my business deduct the full cost of the car?

Yes, but only the portion used for business. The business can depreciate the purchase price over 5 years and deduct actual expenses like gas and repairs—based on business use percentage.

Do I need a lawyer to sell my car to my business?

Not usually, but it’s wise to consult a tax advisor or accountant. They can help with valuation, tax implications, and proper documentation.

What if my business can’t afford to pay me upfront?

Your business can pay you over time with a formal loan agreement. Include interest (at or above the IRS minimum rate) to keep the transaction arms-length.