Typically, in late December, the Internal Revenue Service publishes standard mileage rates for use with tax calculations. Use of an automobile can be deductible under some situations, such as businesses or charities, or for personal situations such as transportation for medical reasons or moving. These rates take effect January 1, 2019 for vehicle use from that day forward. That is, you can’t use these rates for vehicle use from 2018. Also, the way mileage is deducted has changed. The Tax Cuts and Jobs Act altered some claims and deductions from previous years.
Standard Mileage Rates for Cars, Vans and Light Trucks
The business use rate is 58 cents per mile, an increase of 3.5 cents from 2018. If you’re driving for medical reasons or for moving a household, you can use a rate of 20 center per mile. This represents an increase of 2 cents over last year. Charitable service mileage is claimed at 14 cents per mile. This is set by a separate statute and is the same as 2018.
Changes from the Tax Cuts and Jobs Act
Changes introduced by the Tax Cuts and Jobs Act include provisions affecting deductions made from your income. The standard deduction rate is higher. This rate doesn’t require support such as receipts to justify the claim. In the past, itemized deductions, backed with receipts, were an attractive option for some taxpayers. Allowed claims could result in a larger deduction than the standard rate.
With the increase to the standard deduction, more taxpayers will likely choose that option than the more complex itemized method. Standard mileage rates may be irrelevant then for tax purposes, since these are usually included in itemized deductions.
Businesses often use the IRS published rates as a basis for reimbursing mileage for their employees who use their personal vehicle to perform job functions. While there’s no statutory requirement for this, the IRS rates may be helpful for you.
Actual Vehicle Cost Deduction
You always have the option of using actual car costs instead of standard rates for tax purposes. You’ll need to track mileage used for claimable reasons, as well as all car-related expenses. These include things such as fuel, maintenance, insurance and parking costs. You must back these with receipts, and you can only claim the portion of these costs that matches the business use mileage. Since this adds to the filing and paperwork needed to complete your tax return, many filers choose standard rates instead.
Depreciation of your vehicle can be a significant expense. This represents the loss of value of your vehicle due to the passage of time. The standard mileage rate includes a factor for depreciation, so if you’ve used a manual depreciation calculation before, you can’t claim standard mileage. The only exception to this uses the modified accelerated cost recovery system method. You can then return to claim the standard rate if you choose.
You can use the standard rate if you own or lease your own car. However, there are some restrictions. To use the standard rate, you cannot:
- Be a rural mail carrier receiving a qualified reimbursement
- Operate five or more cars as a fleet
- Claim a Section 179 deduction on the car
- Claim special depreciation on the car
- Use a depreciation method other than straight-line depreciation
In addition, to use standard rates, you must use this method in the first year you own the vehicle. After that, you can choose between standard and actual cost methods, as long as you follow depreciation rules.
There are some differences in claiming car expenses depending on if you are an employee, self-employed or a business owner. Be sure you are aware of the rules that apply to your situation.