IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will increase by 3.5¢ to 58¢ per mile for business travel after 2018. This rate can also be used by employers with respect to reimbursements to employees who supply their own autos for business use, and to value personal use of certain low-cost employer-provided vehicles. IRS has also announced: a) 2019 rates for using a car to get medical care and in connection with a move that qualifies for the moving expense deduction; b) the 2019 depreciation component of the mileage rate; and (c) the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.
Background—TCJA. From 2018 through 2025, the Tax Cuts and Jobs Act suspended all miscellaneous itemized deductions subject to the 2%-of-adjusted gross income (AGI) floor under Code Sec. 67, including unreimbursed employee travel expenses.
Accordingly, the business standard mileage rate for 2019 cannot be used to claim an itemized deduction for unreimbursed employee travel expenses. However, notwithstanding the general suspension of miscellaneous itemized deductions, deductions for expenses that are deductible in determining AGI are not suspended.
The TCJA also generally suspended the deduction for moving expenses from 2018 through 2025, but this suspension doesn’t apply to members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station to whom Code Sec. 217(g) applies.
Background—standard mileage, etc. The mileage allowance deduction (subject to current limitations described above) replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving.
Employers that require employees to supply their own autos may reimburse them at a rate that doesn’t exceed the business mileage allowance for employment-connected business mileage, whether the autos are owned or leased. The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee’s personal use of lower-priced company autos may be valued at the optional mileage allowance if the conditions specified in Reg. § 1.61-21(e)(1) are met.
A separate rate applies for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction. The mileage rate for driving an auto for charitable use (14¢ per mile) is a statutory rate that’s not adjusted for inflation.
IRS generally adjusts the standard mileage rate annually, based on a yearly study of the fixed and variable costs of operating an auto. However, IRS has made mid-year adjustments in certain years when necessary to better reflect the real cost of operating an auto in light of rapidly rising gas prices.
Standard mileage rates for 2019. Notice 2019-2 provides that the standard mileage rate for transportation or travel expenses is 58¢ per mile for all miles of business use (business standard mileage rate).
As noted above, miscellaneous itemized deductions are suspended from 2018 through 2025, so the 2019 business standard mileage rate cannot be used to claim an itemized deduction for unreimbursed employee travel expenses during the suspension. However, the suspension doesn’t apply to deductions for expenses that are deductible in determining AGI; so, for example, members of a reserve component of the U.S. Armed Forces, state or local government officials paid on a fee basis, and certain performing artists are entitled to deduct unreimbursed employee travel expenses as an adjustment to total income and therefore may continue to use the business standard mileage rate. (Notice 2019-2, Sec. 3)
The standard mileage rate is 20¢ per mile for use of an auto (1) for medical care described in Code Sec. 213; or (2) as part of a move for which the expenses are deductible under Code Sec. 217(g). The standard mileage rate is 14¢ per mile for use of an auto in rendering gratuitous services to a charitable organization under Code Sec. 170.
As Notice 2019-2 notes, taxpayers using the standard mileage rates must comply with Rev Proc 2010-51.
Depreciation. For 2019, Notice 2019-2, Sec. 4 provides that the depreciation component of the mileage rate for autos used by the taxpayer for business purposes is 26¢ per mile. (It was 25¢ per mile for 2018 and 2017; and 24¢ in 2016 and 2015.) The depreciation component reduces the basis of the auto for gain or loss purposes.
FAVR plans. A taxpayer may use the mileage allowance method for a leased auto only if he or she uses that method (or a fixed and variable rate (FAVR) allowance method) for the entire lease period. Employers may use a FAVR allowance method to reimburse employees who supply their own cars for business (whether the cars are leased or owned).
For 2019, the standard auto cost (including trucks and vans) used to compute the FAVR allowance cannot exceed $50,400 (up from $27,300 for autos, and $31,000 for trucks and vans, for 2018).
When the new rates are effective. The revised standard mileage rates in Notice 2019-2 (58¢ for business; 20¢ for medical or moving) apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes on or after Jan. 1, 2019, and to mileage allowances or reimbursements that are paid to an employee or charitable volunteer (1) on or after Jan. 1, 2019, and (2) for transportation expenses paid or incurred by the employee or charitable volunteer on or after Jan. 1, 2019.
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