Using the Standard Mileage Rate to Deduct Business Driving Expenses

Some business people, like real estate agents and brokers, spend a good deal of time behind the wheel of their car. Indeed, it's not uncommon for real estate agents to drive over 20,000 miles per year for business.

Fortunately, local transportation costs are deductible as business-operating expenses if they're ordinary and necessary for your business. Obviously, such expenses are ordinary and necessary for many business people who do their work away from their office. It makes no difference what type of transportation you use to make the local trips—car, SUV, limousine, motorcycle, taxi—or whether the vehicle you use is owned or leased.

If you drive a car, SUV, or van for business, you have two options for deducting your vehicle expenses:

• you can use the standard mileage rate, or
• you can deduct your actual expenses for gas, depreciation, and other driving costs.

Most people use the standard mileage 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, such as the amount you pay for gas.

Deducting Business Driving Expenses Using the Standard Mileage Rate Deduction

Under the standard mileage rate, you deduct a specified number of cents for every business mile you drive. The IRS sets the standard mileage rate each year.

For 2023, the standard mileage rate is 65.5 cents per mile. Check the IRS website for the current year's rate. To figure out your deduction, simply multiply your business miles by the applicable standard mileage rate.

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).

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 foreclosed 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.

Get More Information

For more information on this and other tax issues, refer to Deduct It!, by Stephen Fishman (Nolo).