Defining a personal vehicle seems pretty much self-explanatory, but you might disagree about how easy a personal vehicle is to define under certain circumstances. For starters, the word personal means it is affecting or belonging to you rather than anyone else.
Personal also means that it concerns your private life instead of being connected to your public image or professional career. Understanding what “personal” means can help you understand what makes a personal vehicle unique.
A personal vehicle is primarily used for the private purposes of its owner or someone authorized by the owner. This differs from a business vehicle, a car for hire, and a commercial vehicle.
Another explanation of a personal vehicle is when the car is used to transport passengers or items at the owner’s discretion without charging a fare–and that’s when the lines between a personal vehicle and, say, a commercial vehicle can get blurry. Is a car you rent still a personal vehicle?
Rental cars
A rental car belongs to the rental car company, but for the duration of your rental, the company authorizes you to use their vehicle, but they do so for a fee. As you try to sort out whether this means it’s a personal vehicle, a commercial vehicle, or something else, there is an easier way to think about it.
When you are renting a car for your personal use, like on vacation, it is very similar to a leased vehicle. It may be for a shorter period of time in comparison, but while you’re renting the car, it is your vehicle if you’re using it as a personal vehicle. Why does this matter?
Whether or not a car is a personal vehicle comes into play most when you’re dealing with car insurance. If you are renting a car, the vehicle is typically covered under your private insurance while it is in your possession as a personal vehicle. It’s important to make sure your insurance coverage includes rental. Often, it does.
When you are renting a car for your private use when you’re on a business trip, though, it is no longer a personal vehicle. It is, essentially, a company vehicle. Most companies that have a fleet of vehicles have commercial auto insurance. As with your personal vehicle’s auto insurance, the company’s commercial auto insurance should cover your rental car for the duration of your rental.
If your company has you rent a car but doesn’t have commercial auto insurance, they may require that you get a certain level of additional insurance for your rental. It’s always important to ask your company, especially if you hope to be reimbursed later on.
Remember in this situation that private and personal are not the same thing, and you need to view your use of the vehicle through the lens of auto insurance. The last thing you want is to find yourself without a proper policy to cover you in the event of an accident.
Typically, you can book your reservation without knowing whether your rental is for personal or business use. If you determine that your rental is for business use, choose the right additional insurance the rental car company offers if you don’t already have it. As with mileage, make sure to keep a receipt and distinguish the purpose of your rental for tax purposes.
Remember if you use your rental car for business and personal use on the same trip, you need to subtract the percentage of the cost that was used for personal use before it can be used as a tax deduction. Keeping a personal log of when you use it for personal use will make it easier to calculate later on, and making your calculations and filing them as soon as you complete your trip can help make sure you don’t miss important tax deductions and leave money on the table. If you use the rental entirely for business, you can deduct the total cost of the car rental for tax purposes.
Small business owners
Another area of gray for defining a personal vehicle is when you own your own business. When you’re a small business owner, it’s unlikely that you’ll have a fleet of vehicles, and you may not even have a separate vehicle for your business.
It is not uncommon for small business owners and employees to use their personal vehicles for travel to and from job sites, transporting equipment, delivering goods, or entertaining clients. The gray area comes into play when it comes to insurance.
Most personal auto insurance policies will almost always exclude when a vehicle is used for business. So, in the event of an accident, you won’t be covered if you were driving for work. They will usually make an exception for your commute, but that’s about it.
It’s important to know if your policy will cover a multipurpose vehicle, and if it doesn’t, ask about the cost of getting a policy that will protect you in every situation.
In addition to having the right insurance, distinguishing your vehicle usage for business or personal will help you at tax time. You can claim mileage for business purposes, so keeping track of your business trip miles and expenditures is the best way to make sure you claim all you need to at tax time.
If you’re unsure what to keep track of, ask your accountant or tax preparer to guide you through understanding what the distinguishing factors are for business and personal use of your vehicle.
If you’re an employee and use your personal vehicle to run errands for your employer, this is another opportunity to track your miles for your taxes. Just remember that you can’t claim the miles that your employer reimburses you for if they are reimbursing for the current mileage rate set by the IRS each year.
Commercial vehicles
If your car falls between a personal vehicle and a commercial vehicle, knowing how to cover your vehicle is crucial. If your business owns your vehicle, you have to have it covered by commercial auto insurance.
Commercial auto insurance covers you or your employees if an accident occurs while operating a company vehicle. Personal and commercial auto insurance will pay for legal and medical costs associated with auto accident claims. However, commercial auto insurance typically covers higher claims and legal issues with greater complexities.
Cars for hire
If you own your personal vehicle and use it occasionally for work, you need a policy designed for hired and non-owned auto insurance. You also need to keep up your travel for work and travel for personal reasons.
In a scenario where you work for a ridesharing service, you will find that you’re covered by your employer only when you have a passenger in your vehicle. If you have an accident on the way to picking up a passenger, you are technically working, so your personal auto policy might not cover you. But, you didn’t have a passenger, so your company’s commercial auto policy might not cover you.
In order to protect yourself in the gray area of this situation, you need to discuss your options with your insurance provider to be sure that you’re always covered. Peace of mind may cost you a little more, but this particular business expense is worth it.
Another reason to consider hired and non-owned auto insurance is if you rent a car for a business trip. Your personal auto insurance will typically cover a rental for personal reasons, but you may not be covered for a business trip.
You may choose to purchase the insurance offered by the rental car company, but if you rent cars for business trips frequently, it may be more beneficial to have the hired and non-owned auto insurance as a permanent fixture.
This will also cover you if you have employees run errands in their personal vehicles. Like other situations mentioned above, their personal auto insurance may not cover them because they were doing work for you. In order to be protected in legal matters and for the sake of your employees, you’ll be glad you had coverage if the need arises.
Summary
As you can see, there are so many different situations, and the status of the car you’re driving can fluctuate rapidly depending on what you’re driving when you’re driving, and why you’re driving. Understanding the many distinctions between private, personal, business, hired, and commercial vehicles can help you make the right decisions for your insurance coverage.
Knowing the definition of a personal vehicle can also help you at tax time and throughout the year to make sure you’re tracking all the expenditures you can claim to save you money. As with insurance, it’s always best to do your research and make sure you know what to do in a given situation.
Car rentals can be tricky as well if you don’t understand when your rental is a personal vehicle and when it is a business vehicle. Educating yourself before you book your rental can help you make sure that you’re covered in the worst-case scenario of being in an accident while driving a rental car.
Sources:
When Does Your Personal Car Become a Commercial Vehicle? | UnitedWealthLLC.com
What Is the Tax Write-off for Renting a Car for Your Business? | Houston Chronicle
Standard Mileage Rates | IRS.gov
