IRS Mileage Rates

Overview

This article discusses the current IRS mileage rates, who can claim the business IRS standard mileage rates, how to calculate your business IRS standard mileage deduction, and how depreciation factors into the equation. In general, the IRS mileage rate is for the individual taxpayer, and it is used in lieu of actual expenses to compute vehicle operating expenses for business, charitable, medical, or moving purposes. However, even when you take advantage of the IRS mileage rates, you still must keep a mileage log for all business, charitable, medical or moving miles driven. The chart below details the IRS standard mileage rates in effect from 2002 through 2010.

Who can Claim the IRS Standard Mileage Rate?

You may not use the standard mileage rate if you.

Operate your business as a corporation and claim the vehicle as a corporate expense;

Use the vehicle for hire, as in the case of a taxicab;

Use five or more vehicles at the same time in your business;

Claim a depreciation deduction on the vehicle using any method other than straight line (such as MACRS or bonus depreciation);

Claim section 179 expensing on any part of the vehicle, or

Claim actual expenses on a leased vehicle.

Example. Alternating Five Vehicles

Marcia, a salesperson, owns three cars and two vans that she alternates for her use in calling on customers. She can use the standard mileage rate to calculate her business deductions for the three cars and the two vans because she does not use them at the same time.12

Calculating your Business IRS Standard Mileage Deduction

The 2010 standard mileage rate for transportation expenses is 50 cents per mile for all miles driven for business purposes. To calculate your deduction, you multiply the business standard mileage rate by the number of business miles traveled.

The business standard mileage rate is computed on a yearly basis and it is in lieu of deductions for your vehicle’s operating expenses and depreciation. When you take advantage of the business standard mileage rate, you may not deduct:

Depreciation (or lease payments),

Maintenance and repairs,

Tires,

Gasoline (including all taxes therein),

Oil,

Insurance, and

License and registration fees.

However, in addition to IRS standard mileage rate deductions, the Schedule C taxpayer may deduct business expenses for:

Parking fees,

Tolls, and

Interest on the business percentage of the loans used to purchase the vehicle.

How does Depreciation Factor into the Equation?

You depreciate your vehicle when you use IRS mileage rates. Thus, you realize gains or losses when you sell an IRS mileage rate vehicle to a third party. The chart below details the IRS depreciation figures in effect from 2003 through 2010.13

Example. Using the IRS Mileage Rate to Compute Your Deductions.

John Roberts, a self-employed taxpayer filing Schedule C, bought a Ford Mustang in January of 2003 for $31,785. He drove 18,000 miles per year, except in 2010 when he drove only 9,000 miles. Below, in four steps, we calculate John’s business loss with an estimated selling price equal to a wholesale value of $5,000 for the Mustang.

Step 1. Compute Gross Depreciation (The Business Part Comes Last—In Step 4)

Step 2. Compute Adjusted Basis

Step 3. Compute Loss on Sale

Step 4. Compute the Business Part of the Loss

Multiply the gross loss computed above by the percentage of business use to find the tax-deductible business loss. For example, John’s gross loss is $1,855. If he drove the Mustang 91 percent for business, his tax-deductible business loss on the sale of this car is $1,688.05 ($1,855 times 91 percent).

IRS Mileage Rate for Leases

This is generally a bad deal. Why? The lease includes an interest component, but the mileage rate does not consider interest in the mileage rate. Thus, the side-by-side comparison usually shows that the mileage rate is a loser on a lease.

Here’s another important thing to know. Is you use the IRS business standard mileage rate on a leased vehicle, you must use the mileage rate on this vehicle for the entire lease period, including renewals.14