# IRS Mileage Rate 2023: Using the Actual Expense Method vs. the Standard Mileage Rate

## You could get much larger deductions using the actual expense method instead of the standard mileage rate.

By , J.D. ● USC Gould School of Law
Updated by Amy Loftsgordon , Attorney ● University of Denver Sturm College of Law
Updated 1/12/2024

In the past, individual taxpayers were often able to deduct mileage when driving a personal vehicle for business purposes. However, the Tax Cuts and Jobs Act of 2017 eliminated this deduction for individuals. But the self-employed can still claim a mileage deduction.

So, if you use a personal car or another vehicle for business purposes other than just commuting to and from work, you're entitled to take a deduction for driving expenses. The two ways to calculate your deduction are:

• using the standard mileage rate, or
• deducting your actual expenses.

Most people use the standard rate because it's simpler and requires less recordkeeping—you only need to keep track of how many business miles you drive, not the actual expenses for your car. But you might be able to deduct more if you use the actual expense method.

## Using the Standard Mileage Rate

With the standard mileage rate, you deduct a set amount for each business mile you drive. The IRS sets the amount each year. For tax year 2023, the standard mileage rate is 65.5 cents per business mile. For the 2024 tax year, the standard mileage rate is 67 cents per mile.

### How to Calculate Your Tax Deduction Using the Standard Mileage Rate

To figure out your deduction, simply multiply your business miles by the applicable standard mileage rate. So, when you use the standard rate, you don't need to keep track of how much you actually spend on gas, repairs, and other car expenses during the year. All you have to do is track your business mileage and total annual mileage.

Most people use the standard mileage rate because it's the simplest and easiest method.

Example. Ethan drove his car 10,000 miles for his real estate business in 2023. To determine his car expense deduction, he simply multiplies his business mileage (10,000) by the applicable standard mileage rate (65.5 cents). He gets a \$6,550 deduction (10,000 x .655 = \$6,550).

### What Can't You Deduct?

If you choose the standard mileage rate, you can't deduct actual car operating expenses—for example, maintenance and repairs, gasoline and its taxes, oil, insurance, and vehicle registration fees. All of these items are factored into the rate the IRS sets.

And you can't deduct the cost of the car through depreciation or Section 179 expensing because the car's depreciation is also factored into the standard mileage rate (as are lease payments for a leased car).

### So, What Expenses Can I Deduct?

The only expenses you can deduct (because these costs aren't included in the standard mileage rate) are:

• interest on a car loan
• parking fees and tolls for business trips (but you can't deduct parking ticket fines or the cost of parking your car at your place of work), and
• personal property tax that you paid when you bought the vehicle, based on its value—this is often included as part of your auto registration fee.

### Using the Standard Mileage Rate In the First Year You Use a Car for Business

You must use the standard mileage rate in the first year you use a car for business, or you're forever prohibited from using that method for that car. If you use the standard mileage rate the first year, you can switch to the actual expense method in a later year, and then switch back and forth between the two methods after that.

For this reason, if you're not sure which method you want to use, it's a good idea to use the standard mileage rate the first year you use the car for business. This leaves all your options open for later years.

But this rule doesn't apply to leased cars. If you lease your car, you must use the standard mileage rate for the entire lease period if you use it in the first year.

## Using the Actual Expense Method

If you use the actual expense method, in addition to tracking your mileage, you must keep track of all your car expenses, including gas, insurance, and repairs. You then deduct the business percentage of these expenses.

You're also allowed to deduct an amount for depreciation each year. However, unlike with other business assets, tax law strictly limits the depreciation deduction for passenger automobiles. (A passenger automobile is any four-wheeled vehicle made primarily for use on public streets and highways that has an unloaded gross weight of 6,000 pounds or less.)

### Annual Limits on Passenger Vehicle Depreciation

As a result of the Tax Cuts and Jobs Act, which took effect in 2018, the annual limits on passenger vehicle depreciation are much higher than they used to be.

See below for the maximum annual depreciation deduction allowed for passenger automobiles placed in service in 2023.

 Depreciation Limits for Passenger Automobiles (2023) (must be reduced by percentage of personal use) First year vehicle placed in service \$12,200 (\$20,200 if \$8,000 bonus depreciation claimed) Second year vehicle placed in service \$19,500 Third year vehicle placed in service \$11,700 Fourth year vehicle placed in service and later \$6,960

If you placed a passenger vehicle into service in your business in 2023, you may take a maximum depreciation deduction of \$12,200. The second year, you may deduct a whopping \$19,500. That's \$31,700 in depreciation deductions in the first two years.

You may deduct up to \$8,000 more the first year if your vehicle qualifies for bonus depreciation. However, you may take bonus depreciation only if you use your car for business over 50% of the time during the year. The annual maximum limits are based on 100% business use of a passenger automobile.

So, if you use your car less than 100% for business, you must reduce your limit accordingly. For example, if you use the vehicle 40% of the time for personal use, your annual deductions are reduced by 40%. Moreover, your actual depreciation deduction, up to the annual limit, depends on the cost of your car.

### Straight-Line Method vs. Accelerated Depreciation

Moreover, your actual depreciation deduction, up to the annual limit, depends on the cost of your car and how much you drive for business. If you drive less than 50% for business, you must use the slowest method of depreciation, called the "straight-line method."

If you drive more than 50% for business, you may use accelerated depreciation that gives you larger deductions in the first few years.

The amounts you can deduct each year with these methods are shown in the following chart:

 Year Straight-Line Method Accelerated Depreciation (200% Declining Balance Method) 1 10% 20% 2 20% 32% 3 20% 19.2% 4 20% 11.5% 5 20% 11.5% 6 10% 5.76%

If you use the standard mileage rate, you only get to deduct 65.5 cents (2023) for each business mile you drive. You get no additional deduction for depreciation (the standard rate includes depreciation).

So, you can get much larger deductions in the first several years after you purchase a car for business using the actual expense method instead of the standard mileage rate, particularly if you purchase an expensive vehicle. (Generally, the standard mileage rate can result in a larger deduction if you drive many miles for business, especially if your car is inexpensive to operate. But, as a result of the Tax Cuts and Jobs Act, the actual expense method might result in much larger deductions than the standard mileage rate during the first several years you own a vehicle.)

## Tracking Business Mileage

Again, if you use a vehicle for business, you can either deduct the actual cost of your gas and other expenses or take the standard rate deduction based on the number of business miles you drive. Either way, you must keep a record of your mileage.

### 52-Week Mileage Log

The hardest way to track your mileage—and the way the IRS would like you to do it—is to keep track of every mile you drive every day, 52 weeks a year, using a mileage logbook or business diary. This means you'll list every trip you take, whether for business, commuting, or personal reasons. If you enjoy record keeping, go ahead and use this method.

However, there is a much easier way: use a sampling method.

### Sampling Method

Under the sampling method, you keep track of your business mileage for a sample portion of the year and use your figures for that period to extrapolate your business mileage for the whole year. This method assumes that you drive about the same amount for business throughout the year. To back up this assumption, you must scrupulously keep an appointment book showing your business appointments all year long. If you don't want to keep an appointment book, don't use the sampling method.

Your sample period must be at least 90 days—for example, the first three months of the year. Alternatively, you may sample one week each month—for example, the first week of every month. You don't have to use the first three months of the year or the first week of every month; you could use any other three-month period or the second, third, or fourth week of every month. Use whatever works best. You want your sample period to be as representative as possible of the business travel you do throughout the year.

You must keep track of the total miles you drove during the year by taking odometer readings on January 1 and December 31 and deducting any atypical mileage before applying your sample results.

Example. Tommy, a traveling salesman, uses the sampling method to compute his mileage, keeping track of his business miles for the first three months of the year. He drove 6,000 miles during that time and had 4,000 business miles. His business use percentage of his car was 67%. From his January 1 and December 31 odometer readings, Tommy knows he drove a total of 27,000 miles during the year. However, Tommy drove to the Grand Canyon for vacation, so he deducts this 1,000 mile trip from his total. This leaves him with 26,000 total miles for the year. To calculate his total business miles, he multiplies the year-long total by the business use percentage of his car: 67%.

## Choosing Whether to Use the Standard Mileage Rate or the Actual Expense Method

If you take the standard deduction, you have a much easier task. But your deduction might be smaller. If you go with the standard mileage deduction, you'll have to keep a mileage log. For the actual expense method, you'll need the mileage log plus receipts for all the expenses you plan to deduct. Ultimately, you need to decide how much effort you want to put into claiming the deduction.

To be safe, you might want to keep track of all your expenses and mileage the first year you purchase a car for business. Then, when you do your taxes for the year, you can calculate what your deduction would be using both methods.

You can then choose whether to use the actual expense method. Keep in mind that if you do so, you'll have to continue to use this method for as long as you own your car. Also, remember that you're allowed to use the standard mileage rate only if you use it the first year you use your car for business.