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Here’s the 411 on who can deduct car expenses on their tax returns

Automobile Deductions

Taxpayers who have deducted the business use of their car on past tax returns should review whether or not they can still claim this deduction. Some taxpayers can. Some cannot.

Here’s a breakdown of which taxpayers can claim this deduction when they file their tax returns.

Business owners and self-employed individuals
Individuals who own a business or are self-employed and use their vehicle for business may deduct car expenses on their tax return. If a taxpayer uses the car for both business and personal purposes, the expenses must be split. The deduction is based on the portion of mileage used for business.

There are two methods for figuring car expenses:

1. Using actual expenses

  • These include:
    • Depreciation
    • Lease payments
    • Gas and oil
    • Tires
    • Repairs and tune-ups
    • Insurance
    • Registration fees

2. Using the standard mileage rate

  • Taxpayers who want to use the standard mileage rate for a car they own must choose to use this method in the first year the car is available for use in their business.
  • Taxpayers who want to use the standard mileage rate for a car they lease must use it for the entire lease period.
  • The standard mileage rate for 2018 is 54.5 cents per mile. For 2019, it‘s 58 cents.

There are recordkeeping requirements for both methods. 

Employees
Employees who use their car for work can no longer take an employee business expense deduction as part of their miscellaneous itemized deductions reported on Schedule A.  Employees can’t deduct this cost even if their employer doesn’t reimburse the employee for using their own car. This is for tax years after December 2017. The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions subject to the 2% floor.  

However, certain taxpayers may still deduct unreimbursed employee travel expenses, this includes Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials.

More information:
Publication 535, Business Expenses

IRS issues standard mileage rates for 2019

IRS issues standard mileage rates for 2019

WASHINGTON — The Internal Revenue Service today issued the 2019 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 58 cents per mile driven for business use, up 3.5 cents from the rate for 2018,
  • 20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018, and
  • 14 cents per mile driven in service of charitable organizations.

The business mileage rate increased 3.5 cents for business travel driven and 2 cents for medical and certain moving expense from the rates for 2018. The charitable rate is set by statute and remains unchanged.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Notice-2019-02.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. These and other limitations are described in section 4.05 of Rev. Proc. 2010-51.

Notice 2018-02, posted today on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Recent changes to moving, mileage and travel expenses

Recent changes to moving, mileage and travel expenses

The Tax Cuts and Jobs Act includes changes to moving, mileage and travel expenses:

Move-related vehicle expense
The new law suspends the deduction for tax years beginning after Dec. 31, 2017, through Jan. 1, 2026. During the suspension, no deduction is allowed for use of an auto as part of a move using the mileage rate listed in IRS Notice 2018-03.

This does not apply to members of the Armed Forces on active duty who move related to a permanent change of station.

Unreimbursed employee expenses
The Act also suspends all miscellaneous itemized deductions subject to the 2 percent of adjusted gross income floor. This change affects unreimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel.

For additional guidance, see IRS Notice 2018-42.

Standard mileage rates for 2018
The standard mileage rates for the use of a car, van, pickup or panel truck for 2018 remain:

  • 54.5 cents for every mile of business travel driven, a 1 cent increase from 2017.
  • 18 cents per mile driven for medical purposes, a 1 cent increase from 2017.
  • 14 cents per mile driven in service of charitable organizations, which is set by statute and remains unchanged.

Increased depreciation limits
The recent legislation also increases the depreciation limitations for passenger autos placed in service after Dec. 31, 2017, for purposes of computing the allowance under a fixed and variable rate plan. The maximum standard automobile cost may not exceed $50,000 for passenger automobiles, trucks and vans placed in service after Dec. 31, 2017.

For additional details, see the May 25, 2018 IRS news release: Law change affects moving, mileage and travel expenses

Law change affects moving, mileage and travel expenses; Offers higher depreciation limits for some vehicles

Law change affects moving, mileage and travel expenses; Offers higher depreciation limits for some vehicles

WASHINGTON –  The Internal Revenue Service today provided information to taxpayers and employers about changes from the Tax Cuts and Jobs Act that affect:

Move related vehicle expenses

Un-reimbursed employee expenses

Vehicle expensing

Changes to the deduction for move-related vehicle expenses

The Tax Cuts and Jobs Act suspends the deduction for moving expenses for tax years beginning after Dec. 31, 2017, and goes through Jan. 1, 2026. Thus, during the suspension no deduction is allowed for use of an automobile as part of a move using the mileage rate listed in Notice 2018-03.  This suspension does not apply to members of the Armed Forces of the United States on active duty who move pursuant to a military order related to a permanent change of station.

Changes to the deduction for un-reimbursed employee expenses

The Tax Cuts and Jobs Act also suspends all miscellaneous itemized deductions that are subject to the 2 percent of adjusted gross income floor. This change affects un-reimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel.

Thus, the business standard mileage rate listed in Notice 2018-03, which was issued before the Tax Cuts and Jobs Act passed, cannot be used to claim an itemized deduction for un-reimbursed employee travel expenses in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2026. The IRS issued revised guidance today in Notice 2018-42.

Standard mileage rates for 2018

As mentioned in Notice 2018-03, the standard mileage rates for the use of a car, van, pickup or panel truck for 2018 remain:

  • 54.5 cents for every mile of business travel driven, a 1 cent increase from 2017.
  • 18 cents per mile driven for medical purposes, a 1 cent increase from 2017.
  • 14 cents per mile driven in service of charitable organizations, which is set by statute and remains unchanged.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

Increased depreciation limits

The Tax Cuts and Jobs Act increases the depreciation limitations for passenger automobiles placed in service after Dec. 31, 2017, for purposes of computing the allowance under a fixed and variable rate plan. The maximum standard automobile cost may not exceed $50,000 for passenger automobiles, trucks and vans placed in service after Dec. 31, 2017. Previously, the maximum standard automobile cost was $27,300 for passenger automobiles and $31,000 for trucks and vans.

More information

Notice 2018-42 is posted on IRS.gov and contains information about the update to the standard mileage rates, including the details about the suspension of the deduction for operating a vehicle for moving purposes.

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