The IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will decrease by 0.5¢ to 53.5¢ per mile for business travel after 2016. This rate can also be used by employers to provide tax-free reimbursements to employees who supply their own autos for business use, under an accountable plan, and to value personal use of certain low-cost employer-provided vehicles. And, the rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction will decrease by 2¢ to 17¢ per mile.
The mileage allowance deduction 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.
Depreciation. For 2017, provides that the depreciation component of the mileage rate for autos used by the taxpayer for business purposes is 25¢ per mile. (It was 24¢ per mile for 2016 and 2015; 22¢ per mile for 2014; and 23¢ per mile for 2013.) The depreciation
component reduces the basis of the auto for gain or loss purposes.
A taxpayer may use the mileage allowance method for a leased auto only if he 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 2017, the standard auto cost used to compute the FAVR allowance cannot exceed $27,900 (down from $28,000 for 2016). For trucks or vans, the 2017 standard auto cost used to compute the FAVR allowance cannot exceed $31,300 (up from $31,000 for 2016).