43.1 Standard Mileage Rate
If you start to use your car for business in 2012, you have a choice of either deducting the actual operating costs of your car during business trips or deducting a flat IRS allowance. The allowance is 55.5¢ per mile. The mileage allowance also applies to business trips in a van or pickup or panel truck as if it were a car.
If you placed a car, van, pick-up, or panel truck in service before 2012 and have always used the IRS mileage allowance, you may apply the cents-per-mile rate to your 2012 business mileage or deduct your actual operating costs plus straight-line depreciation over the remaining estimated useful life of the vehicle (assuming the vehicle is not considered fully depreciated).
The rate may not be used to deduct the costs of a vehicle used for nonbusiness income-producing activities such as looking after investment property.
Allowance must be elected for the first year.
The choice of the allowance must be made in the first year you place the vehicle in service for business travel. If you do not use the allowance in the year you first use the vehicle for business, you may not use the allowance for that vehicle in any other year. Thus, if you bought a car for business in 2011 and on your 2011 return you deducted actual operating costs plus depreciation, you may not use the mileage allowance on your 2012 return or in any later year.
Planning Reminder
Allowance takes the place of fixed operating costs plus depreciation.
If you claim the allowance, you cannot deduct your actual outlays for expenses such as gasoline (including state and local taxes), oil, repairs, license tags, or insurance, nor can you deduct depreciation or lease payments. Parking fees and tolls during business trips are deductible in addition to the mileage allowance. The IRS will not disallow a deduction based on the allowance even though it exceeds your actual vehicle costs. If you use more than one automobile in your business travel and elect the allowance, total the business mileage traveled in both cars.
Records.
You may decide to use the allowance if you do not keep accurate records of operating costs. However, you must keep a record of your business trips, dates, customers or clients visited, business purpose of the trips, your total mileage during the year, and the number of miles traveled on business. An IRS agent may attempt to verify mileage by asking for repair bills near the beginning and end of the year if the bills note mileage readings.
Caution
Mileage allowance for leased vehicle.
The IRS mileage allowance is also available for leased cars, vans, and pick-up or panel trucks, but it must be used for the entire lease period or not at all. For example, if in 2012 you leased a car for business purposes and you claim the cents-per-mile allowance, you will also have to use it for the remainder of the lease period, including renewals.
Interest on a vehicle loan and taxes.
The deduction rules are discussed in the following section (43.2).
Mileage allowance disallowed.
You may not claim the cents-per-mile allowance if:
- You have depreciated your vehicle using the ACRS or MACRS method, including straight-line MACRS, or you claimed first-year expensing or first-year bonus depreciation.
- You use in your business five or more vehicles simultaneously, such as in a fleet operation.
- You use your vehicle for hire—that is, you use it as a taxicab, carrying passengers for a fare.
Employer reimbursements.
If your employer reimburses your vehicle costs at a rate lower than the IRS allowance, you may use the IRS rate to deduct the excess over your employer’s reimbursement; see Example 3 at 20.33.
IRS allowance includes depreciation.
When you use the IRS mileage allowance, you may not claim a separate depreciation deduction. The IRS mileage allowance includes an estimate for depreciation. For purposes of figuring gain or loss on a disposition, you must reduce the basis of the vehicle by the following depreciation amounts: 17 cents per mile in 2005 and 2006, 19 cents per mile in 2007, 21 cents per mile in 2008 and 2009, 23 cents per mile in 2010, 22 cents per mile in 2011, and 23 cents per mile in 2012.
Depreciation when switching from allowance to actual costs.
If you use the IRS mileage allowance in the first year, you may switch to the actual-cost method in a later year, but depreciation must be based on the straight-line method over the remaining estimated useful life. However, no depreciation may be claimed if basis has been reduced to zero under the annual cents-per-mile reduction rule in the preceding paragraph.
Table 43-1 Deducting Car and Truck Expenses
| Item— | Tax Rule— |
| IRS mileage allowance | You may avoid the trouble of keeping a record of actual vehicle expenses and calculating depreciation by electing the IRS mileage allowance for a car, van, or pick-up or panel truck. However, to claim the allowance, you must be ready to prove business use of the vehicle and keep a record of your mileage. The allowance may give you a larger deduction than your actual outlays plus depreciation. You must elect the allowance in the first year you use the vehicle for business. If you do not, you may not use the allowance for that vehicle in any other year If your actual operating costs plus depreciation exceed the allowance for the first year you place the vehicle in business service, you may claim your actual operating expenses and depreciation, but doing so will forfeit your right to elect the allowance for that vehicle in any later year. |
| Depreciation | If you claim actual operating expenses, such as gasoline, repairs, and insurance costs, you may also claim depreciation. There is a cap on the annual depreciation deduction. For a car placed in service in 2012, the first- year depreciation limit is generally $3,160, but for a new car used over 50% for business the limit is increased by an $8,000 bonus allowance. For light trucks and vans placed in service in 2012, the basic $3,360 limit is increased by the $8,000 bonus if the vehicle is new and used over 50% for business. These limits must be reduced for personal use (43.4). The total of the bonus allowance, first-year expensing, and regular depreciation is limited to the applicable 2012 first-year ceiling of $3,160, $3,360, $11,160, or $11,360, as reduced for personal use (43.4). Electing first-year expensing or depreciation for a car or truck placed in service in 2012 prevents you from using the IRS mileage allowance (43.1) for that car in later years. For a cars and trucks placed in business service in 2012 that are used 50% or less for business, you must use straight-line depreciation subject to the applicable ceiling (43.6). If business use is initially over 50% but declines to 50% or less in a later year, prior year depreciation deductions, including bonus depreciation and first-year expensing, must be recaptured as income to the extent they exceeded straight-line deductions (43.10). For a vehicle placed in service before 2012, see Tables 43-2 and 43-3 for the maximum depreciation you can claim for 2012. |
| Vehicle used for business and personal driving | You may deduct only the amount allocated to business mileage. For example, total mileage is 20,000 in 2012 and your business mileage is 15,000. You may claim only 75% of your deductible costs (15,000 ÷ 20,000). |
| Tax return reporting | If you are an employee, you claim actual vehicle expenses or the IRS allowance on Form 2106. Form 2106 requires you to list mileage for business, commuting, and other personal trips. If your vehicle costs are not reimbursed by your employer, you must deduct them as miscellaneous deductions subject to the 2% AGI floor on Schedule A. If you are self-employed, you deduct business costs on Schedule C and use Form 4562 to compute depreciation if you claim actual operating costs. Costs deducted on Schedule C are not limited by the 2% adjusted gross income (AGI) floor. |