By Joe Morris, CPA
For 2022, taxpayers will be entitled to an additional four-cent increase in the standard mileage rate for miles incurred after July 1.
The IRS recently announced the increase in Announcement 2022-13. The standard mileage rate allows for a simplified method for a taxpayer to claim expenses related to operating a vehicle for business purposes, as well as an allocable rate for charitable and moving or medical miles. The applicable rates for 2022 are detailed in the table below.
|January 1 - June 30||July 1 - December 31|
|Business||58.5 cents per mile||62.5 cents per mile|
|Medical/Moving||18 cents per mile||22 cents per mile|
|Charitable||14 cents per mile||14 cents per mile|
A taxpayer can elect to use actual expenses or the standard mileage rate when determining the cost of operating an automobile for business purposes. To use the Standard Mileage Rate Method, the election must be made in the first year the vehicle is placed in service. The election to utilize the standard mileage rate must be performed by the due date of the return, including extensions. The election cannot be revoked; however, it is an annual election allowing the taxpayer to elect to continue using standard mileage rate or use actual expenses in later years.
Costs included in the standard mileage rate include depreciation, gas and oil, insurance, maintenance and repairs, vehicle registration fees and lease payments. Other costs associated with operating the vehicle, such as interest, personal property taxes, and parking fees and tolls, are not included in the standard mileage rate. These additional costs may be claimed by a taxpayer to the extent they are eligible business deductions under IRC Section 162(a).
An allowance for depreciation is included in the calculation for the standard mileage rate. The taxpayer must reduce the basis of an automobile by the depreciation component of the standard mileage rate, but the basis cannot go below zero. If the depreciation component of the standard mileage rate exceeds the adjusted basis of the automobile, the automobile is considered fully depreciated, but this does not prevent the taxpayer from continuing to claim the full amount of the standard mileage rate. The depreciation component is used only to compute gain or loss if the vehicle is sold or computing depreciation when switching from the standard mileage rate to the actual expenses method.
Depreciation Component of Standard Mileage Rate
|25 cents||26 cents||27 cents||26 cents||26 cents|
Under Section 262, taxpayers are not entitled to claim an expense for personal or commuting miles. Commuting miles include transportation to and from home to the taxpayer’s primary place of work. For taxpayers with multiple workplaces, or no regular place of work, commuting miles are the transportation mileage from home to the first workplace and the final workplace commuting back home. The hauling of tools or equipment, displaying of advertising, or working during commuting does not change the nature of commuting miles. For example, gig economy drivers such as Uber and Lyft will start their business mileage from their first stop and end with the last stop. The mileage driving to the first stop and back home are considered commuting miles and are not deductible.
Taxpayers are not allowed to utilize the standard mileage rate if:
- More than five vehicles are used at the same time by the business (fleet operation);
- Utilized a method of depreciation other than straight-line depreciation;
- Claimed a Section 179 deduction for the vehicle;
- Claimed special depreciation allowance for the vehicle;
- Rural mail carriers who receive qualified mileage reimbursement; or
- Utilizes an employer provided auto and incurs unreimbursed auto expenses.
Since the passage of the Tax Cuts and Jobs Act of 2017 (TCJA), the deduction for using an automobile as an employee is not currently allowed for most taxpayers due to the suspension of miscellaneous itemized deductions that are subject to the 2 percent Adjusted Gross Income (AGI) limit. While TCJA does not allow for moving expenses, active-duty members of the military may be entitled to the deduction. However, reimbursements under accountable plans are still allowed. Additionally, qualified Armed Forces reservists, fee basis government officials, and certain performing artists may be eligible to claim unreimbursed travel expenses as an adjustment to gross income.
As listed property, a taxpayer must keep adequate records to substantiate qualified business use greater than 50 percent. Records should include date, amount, place, business purpose for the transportation or travel expense. Sampling can be utilized to establish a greater than 50 percent use; however, a taxpayer should still maintain adequate records to verify total mileage claimed. Additionally, taxpayers should maintain substantiation for expenses that are not included in the standard mileage rate as previously discussed.
For further information on utilization of standard mileage rate, the following references are available:
- IRS Publication 463, Travel, Gift, and Car Expenses
- IRS Publication 946, How to Depreciate Property
- Proc. 2021-31
- Proc. 2004-64
- Ruling 99-7
- IRS Notice 2022-03
- IRC §280(F), Limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes.
Joe Morris, CPA, is the principal and shareholder of Morris Tax and Accounting PLLC in Stigler, Okla. He has more than 15 years of experience in tax and accounting and is a current member of the OSCPA's Taxation Committee.